The Board of Directors of the Central Bank of Colombia maintains the Benchmark Interest Rate at 4.5%

Publication Date:
13:23

The Board of Directors of the Central Bank of Colombia at today´s session decided to maintain the benchmark interest rate at 4.5%. This decision considered the following issues:

 

  • Regarding the international context, while the economic growth of the United States shows strength and some signs of being self-sustained, growth in the euro zone and in Japan continues weak. Some of the main emerging economies are expanding at a slower pace, or at historically lower rates.  The average growth of Colombia´s trade partners will be low, but probably higher than the one registered a year ago. 
  • Colombia's terms of trade dropped significantly by the end of 2014. In the last few weeks, oil prices and those of other commodities exported and imported by Colombia stopped falling. Part of the downturn in the terms of trade will be permanent, and will be reflected in a lower growth of national income. 
  • In February, the risk premia of Colombia and of other countries in the region were lower, but are still higher than the average in 2014. So far this year, the information of the foreign exchange market balance shows that foreign direct investment and portfolio inflows continue dynamic. 
  • The new information for the fourth quarter of 2014 suggests that domestic demand continued dynamic and that net exports would have subtracted more than expected from output. With this information, the forecast of economic growth for 2014 was unchanged between 4.5% and 5.0%, with 4.8% as the most likely outcome. 
  • For 2015, the technical staff projects a growth rate between 2.0% and 4.0%, with 3.6% as the most likely outcome. This projection considers the effect of lower oil prices.
  • As a consequence of the strong fall in oil exports´ income and the dynamism of domestic demand, the balance of payments’ current account deficit widened. During the first three quarters of 2014, was 4.6% of the GDP, higher than the 3.3% of the GDP registered in the same period of 2013. The evolution of exports and imports during the fourth quarter of 2014 suggests at an additional widening of this deficit.
  • In January, inflation increased to 3.82%, higher than the projections of the technical staff and of the average of the market. The acceleration in inflation is mainly explained by the faster pace of increase in food prices. The average of core inflation measures increased four months in a row, reaching 3.22%. 
  • Analysts' one-year and two years inflation expectations decreased and are now close to 3.0%. Those derived from public debt bonds for longer horizons also fell and are now at the top half of the target range. 
  • The pass-through of the depreciation of the peso to the tradable component of CPI inflation is expected to continue partially and temporarily without having significant effects on inflation expectations. The higher exchange rate represents a stimulus for exports and the sectors that compete with imports and contributes to moderate the negative impact of oil prices on the country's fiscal and external accounts.
 
 

In summary, by the end of 2014, domestic demand showed dynamism close to the full use of the productive capacity. In February, inflation and its expectations are slightly over 3.0%. This takes place in an environment of deterioration of the terms of trade and of uncertainty about its evolution and its impact on aggregate demand. Having assessed the risk balance, the Board of Directors deemed appropriate to maintain the benchmark 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 those of the asset markets and the international situation. The Board also reiterates that the monetary policy will depend on the information available.

 

Bogotá,