Banco de la República maintains the benchmark interest rate at 4.25%.

The Board of Directors of Banco de la República, in its meeting today, decided to maintain the benchmark interest rate at 4.25%. For this decision, the Board mainly took into account the following aspects:

• In the past two months, annual inflation stopped falling, and stood at 3.16% in May. In the same month, the average of core inflation indicators (3.43%) and the major components of the CPI also recorded relatively stable annual variations.
• Inflation expectations did not record important changes. Analysts’ expectations are, on average, at 3.35% and 3.34% for December 2018 and 2019, respectively. Those derived from public debt bonds to 2, 3, and 5 years, stand between 3.0% and 3.2%.
• Growth of trading partners continues to recover, driven by developed economies and by the major emerging economies. Oil prices remain at levels higher than the averages registered in the last two years. The increase in the country's terms of trade and a better dynamics expected from external demand would continue favoring the recovery of the country’s external income. Despite this, in the last month the Colombian peso has depreciated vis-à-vis the US dollar in an environment of increased risk premia. 
• GDP results for the first quarter and indicators of economic activity for the second suggest that the economy would have continued to exhibit a low growth, but higher than in 2017. With these results, the technical staff of the Central Bank maintained its growth estimate for 2018 at 2.7%. However, the Bank's technical staff estimated that the productive capacity is still underused, and that it would expand in 2018. 
• In the first quarter of 2018, the deficit in the balance of payments declined compared to the same period last year. The forecast of the Central Bank's technical staff for 2018 points to a slight closure of the external deficit as a share of GDP.

Based on this information, the Board considered the following factors for its decision:

• Weakness of the economic activity and uncertainty over its pace of recovery. On the one hand, the excess of spare capacity would expand in 2018. On the other hand, should the price of oil remain at current levels for an extended period or should the increasing trend of confidence persist, the dynamics of aggregate demand could be greater than expected. 
• The stability of inflation and its expectations above 3.0%, and some risks that could push inflation upwards. One of them is an increase in food prices that could affect expectations and delay convergence of inflation to 3.0%. Similarly, a stronger-than-expected depreciation of the peso that could be passed-through to domestic prices. Again, uncertainty on these events is high. 

In this context, after assessing the state of the economy and the risk balance, the Board deemed appropriate to maintain the benchmark interest rate at 4.25%.

The Board will continue to carefully monitor the behavior of inflation and the forecasts for economic activity and inflation in the country, as well as the international context. Finally, the Board reiterates that the monetary policy will depend on the availability of new information. 

The decision to maintain the benchmark interest at 4.25% was approved unanimously by the members of the Board. 

Bogotá, D. C.