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 its intervention interest rate unchanged. Consequently, the base repo auction rate will remain at 3%. This decision was taken in light of the following factors:

• Annual consumer inflation was 2.25% in June, which is higher than it was in April (18 b.p.) but less than anticipated by the Central Bank’s technical team.

• Most indicators of core inflation (which does not include the more volatile items, such as food prices) fell once again and persist in the lower part of the long-term target range for inflation set by the Board of Directors (3% +/- 1%). Inflation expectations continued to decline as well.

• The outcome for inflation during the past month is consistent with the technical team’s forecasts, which suggest– with a high degree of confidence – that inflation will remain within the long-term target range during 2010 and 2011.

• The information received in the last few weeks indicates the Colombian economy is growing faster than expected, without bringing inflationary pressures to bear. The increase in exports, bolstered by recovery in global economic growth and by better terms of trade, confirms the build-up in the Colombian economy, as do other factors such as the increase in consumer and producer confidence, the momentum in a number of leading indicators and the soundness of the financial system. In view of these circumstances, the Central Bank’s technical team raised its GDP growth forecast for 2010, indicating it will be within a range of 3.5% to 5.5%, with 4.5% being the most likely scenario.

• The global economy continued to grow during the second quarter, thanks to better performance by the emerging economies and by the United States. The mounting recovery of the Latin American economies is a high point in this respect. The international markets stabilized after the financial crisis in Europe. All of this prompted a reduction in risk premiums and caused a number of the region’s currencies to appreciate, including the Colombian peso.

• The Board of Directors believes its expansive monetary policy contributes to economic growth in the short term.

The Board will continue to keep a close watch on the international situation and on forecasts and performance with respect to inflation and growth. It reiterated that monetary policy in the future will depend on whatever new inflation becomes available.

Bogotá, Colombia