The Banco de la República maintains its intervention interest rate

At its meeting today the Board of Directors of the Banco de la República (Colombia´s central bank), decided, by a majority vote, to keep its intervention rate unchanged. In this way, the base rate for expansion auctions will continue at 4.5%. The decision reflected the following considerations:

Annual inflation for the consumer has fallen for the ninth consecutive month and reached 3.28% in July.  This decline was again seen in the prices of foodstuffs and regulated goods (fuel, public services and transport). The indicators for basic inflation (that which excludes the prices of the most volatile products, like foodstuffs) continued to fall. Inflation expectations are near the upper limit of the long-term target range set by the Board (between 2% and 4%).

Lower inflationary pressures continue to be the case, as the result of several factors: 1) the weakness of internal and external demand; 2) lower inflation expectations; and 3) a reduction in the prices of basic products with regard to the maximum level reached in 2008. In consequence, the Board foresees that the end of the year will find annual inflation below the lower limit of the target range (4.5%).

Thanks to the reduction of the Banco de la República´s intervention rate, the  deposit and placement interest rates have consistently fallen. The Board of Directors expects this decline to continue and to stimulate economic growth. For its part, the financial system shows a healthy performance. It is worth noting the large issuances of bonds by the real sector which have complemented credit from the financial sector.

Indicators for opinion and confidence among companies and consumers continue to show improvements for the second semester. Furthermore, the latest results for industry, commerce and construction are in line with the projections for  growth made by the Bank´s technical team for the end of the year.

The new information confirms that the world economy is stabilizing. A slow economic recuperation is expected in the second semester and there are improved projections for growth in the year 2010.

The strong monetary expansion, lower variation in the prices of foodstuffs and regulated goods, a less negative external ambit and a greater dynamism in civil works leads the Bank to expect a gradual recuperation of economic growth from the second semester of this year onwards.

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