The Central Bank of Colombia holds its intervention interest rate steady

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

Annual consumer inflation in February was 2.09%, which is one basis point lower than in January and better than the market expected. It also is better than the level anticipated in technical studies done by the Central Bank. The indicators of core inflation (which does not include prices of the more volatile items, such as food) declined, staying within the target range set by the Board of Directors, which coincides with the long-term range (between 2% and 4%).

The Central Bank’s inflation forecasts include temporary food price hikes occasioned by El Niño weather. However, those increases are expected to reverse during the second half of the year.  Up to now, the annual variation in food prices has been better than expected.

Industrial production and retail sales in the U.S. economy are up for the year to date, while China and India continue to experience accelerated growth, which has allowed for high commodity prices.  On the other hand, growth in the Latin American countries is showing signs of recovery.

DANE, the government statistics agency, reported 0.4% annual GDP growth in 2009 and 2.5% annual GDP growth in the fourth quarter of that year.  These results confirm the Colombian economy is sound enough to withstand external shocks.

Available economic indicators for the year to date, particularly with respect to retail sales and the demand for electricity, also suggest more momentum in the economy.  This is corroborated by the expectations of the business community, which are still relatively high.  All of these factors indicate the Colombian economy is on the road to recovery.

The Central Bank’s expansive monetary policy has allowed for a steady decline in interest rates on deposits and lending.  The Board of Directors anticipates the benchmark rate at 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 keep a close eye on the international situation, as well as inflation and economic forecasts and performance. It reiterated that monetary policy in the future will depend on whatever new information becomes available.

Bogota, Colombia