The Banco de la República reduces its intervention interest rate by 50 basic points

In its meeting today, the Board of Directors of the Banco de la República decided to reduce its intervention interest rate by 50 basic points. In this way, the base rate for expansion auctions will be 4%. The decision resulted from the following considerations:

Annual inflation for the consumer fell in August for the tenth consecutive month and reached 3.13%.  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 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; and 4) the appreciation of the peso. In consequence, the Board foresees that the end of the year will find annual inflation near 3.5%.

The results for the growth of the GDP in the second quarter met expectations, especially in the strong growth of civil works. For its part, the performance of consumption in homes and private investment was lower than what was forecasted. 

The expansive monetary policy has allowed for a consistent reduction of the deposit and placement interest rates. The Board of Directors expects this trend to continue and to stimulate economic growth in an ambit characterized by a healthy financial system, in line with the improvement of the indicators for confidence among consumers and businessmen.

The reduction by 50 basic points of the intervention rate aims to strengthen the recuperation of the economy and reduce the possible negative effects of the restrictions on commerce which have appeared and of the appreciation of the peso. The intervention rate is expected to be stable in the near future.

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