Banco de la República keeps the Benchmark Interest Rate at 4.5 %
The Board of Directors of Banco de la República at today’s session decided to keep the benchmark interest rate at 4.5%. In order to reach this decision, the Board considered the following issues:
- Regarding world economy, recovery of the USA contrasts with the loss of dynamism in the euro zone, together with a more accentuated slow-down in China and other countries in the region. Risk primes in several countries have increased slightly, and their currencies have devaluated versus US dollar.
- Exchange terms in Colombia will probably fall as a consequence of the reduction of the international price of oil.
- In Colombia, the growth of the GDP in the second trimester was equal to the one expected by the technical staff of Banco de la República (4.3%). There are, however, important differences between the projection and the result observed in terms of the composition of growth from the outlook of demand. On the one hand, growth of internal demand for this trimester (7.7%) was significantly greater than the one projected (5.4%). On the other, net exports registered a strong fall, partially explained by temporary phenomena. For the second semester, forecasts suggest that GDP could grow around 4.5%.
- Annual growth of bank credit continued to slow down, but posted above the growth of the nominal GDP. Pass-through of the increments in the benchmark interest rate to the lending and savings interest rates has been slow.
- In August, annual inflation (3.02%) posted within the long-term goal, and the short-term projections continued to be a little above 3%. Part of the increase in the forecast obeys to the transitory increments in the CPI for food and regulated goods. The expectations of inflation for terms of over a year remain close to the 3% goal, and it is expected that the pass-through of the devaluation observed for internal prices will be moderate.
In summary, the aggregate demand continues to show a strong growth in a context close to the full performance of the productive capacity. At the same time, the expectations for inflation keep close to 3%. This takes place in an environment characterized by deterioration of the terms for exchange together with greater uncertainty on the recovery of the activity worldwide and the cost of external financing, factors which may affect the aggregate demand as well as the exchange rate. Having considered the risk balance, the Board of Directors has deemed appropriate to keep the reference interest rate unaltered.
The Board will continue to carefully monitor the behavior and projections of the economic activity and inflation in the country, as well as that of asset markets and the international situation. Finally, the Board reiterates that the monetary policy will depend on the information available.
