The Central Bank of Colombia leaves its intervention interest rate unaltered

At a meeting today, the Board of Directors of the Central Bank of Colombia left the intervention interest rate unaltered. Accordingly, the repo auction base rate will remain at 3.50%. This decision was based on the following factors:

Annual consumer inflation in January was 2.1% as opposed to 2% at the end of December.  The indicators of core inflation (which does not include prices of the more volatile items such as food) rose slightly, as did inflation expectations one year out.  However, those indicators are still within the target range set by the Board of Directors, which coincides with the long-term range for inflation (between 2% y 4%).

The behavior of annual inflation in January was due largely to the increase in regulated prices. Food prices continued to decline, in spite of El Niño weather. There were price hikes for perishables, but they were more than offset by non-perishables and food outside the home.

The Central Bank’s inflation forecasts include temporary increases in the price of food as a result of El Niño weather. However, those increases are expected to be reversed during the second half of the year.

During the fourth quarter of 2009 and so far this year, the economy in the United States, which is Colombia’s major trading partner, grew more than international analysts expected. The mid-term and long-term outlook for the economies in the region and for other emerging countries remains favorable.

The figures at hand show the slow recovery in quarterly GDP levels continues. Expectations in the business community have evolved favorably and there is more momentum in private consumption.

The Central Bank’s expansive monetary policy has allowed for a steady decline in interest rates on deposits and lending. The Board of Directors expects the benchmark rate, as it now stands, will continue to stimulate economic growth in an environment characterized by a healthy financial system.

The Board of Directors will continue to monitor the international situation closely, as well as performance and forecasts for inflation and economic growth. It reiterated that monetary policy in the future will depend on whatever new information becomes available.

Bogotá, Colombia