The Banco de la República reduces its intervention interest rate by 100 basic points

At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points.  Thus, the base rate for expansion auctions will be 5%.

The annual inflation rate for the consumer in April was 5.73%, the sixth consecutive monthly fall.  This decline was seen in the prices of both foodstuffs and other basic household goods: what stood out was the deceleration of the prices of non-tradable and regulated goods.  The indicators for basic inflation continued to decline during the month and inflation expectations approached the medium- and long-term target range (3%+/- one percentage point).

The above confirms that the weakness of internal and external demand, the reduction of inflation expectations and the fall in the international prices of basic products compared with the maximum level reached in 2008 are strongly reflected in the smaller inflationary pressures. The Board believes that annual inflation will continue to fall in the following months and may end the year below the midpoint of the target range (5%).

The available data on the growth of the product of countries in the first quarter of the year confirms the contraction of the world economy. In recent weeks, however, there have been signs of stabilization in the economy of the United States and of an important recuperation in China. In a similar manner the prices of assets in the industrialized and emerging economies have shown a positive performance. In Latin America the strong devaluation of currencies registered at the beginning of 2009 has corrected itself and risk premiums have fallen.

In Colombia, the international crisis has mostly made itself felt through the deterioration of consumer and producer expectations and a slower dynamic of exports and international remittances. The latest data on industry, commerce and construction signal strong declines when they are adjusted for working days. Nevertheless, the financial system continues to show a healthy behavior.

The intervention interest rate has been reduced by 500 basic points in about five months and its current level is clearly expansive. The interest rates on loans for companies and families are also expected to continue to fall.  Monetary thrust, a less negative external environment and the greater dynamism of public investment allow for the hope of a gradual recuperation of economic growth beginning in the second semester of this year.

On the basis of the information available up to now, the Board foresees that any eventual reduction of its interest rate in the future will be smaller than those observed recently.

The Board will continue to undertake a careful monitoring of the international situation,  the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá,