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

The Board of Directors of the Central Bank of Colombia in today's session decided to maintain the benchmark interest rate at 4.5%. This decision mainly took into account the following aspects:

• Recent data suggest a recovery of growth in the United States after a lower-than-expected growth in the first quarter. The euro zone and Japan show signs of gradual recovery. China continues slowing down, while output of the main countries in Latin America grows at low or negative rates. It is likely that the average growth of Colombia's trading partners will be lower in 2015 than in 2014.

• Despite the recent recovery in oil prices, and the decline in the prices of imports, Colombia's terms of trade in 2015 will be lower than last year's levels, and will permanently affect the dynamics of national income.   

• Colombian economy grew 2.8% in the first quarter, similar to the forecast of the technical staff. Domestic demand slowed down, but it maintains a dynamic behavior, with a growth above 4.0% due particularly to investment dynamics. In contrast, net exports subtracted from growth due to the strong increase of imports. 

• The information for the second quarter of 2015 suggests that the Colombian economy continues adjusting to the new external conditions, and that household expenditure could show moderate growth. This takes place within an environment of a strong labor market and real interest rates that are still expansionary. Similarly, moderation in investment is also expected, despite the fact that civil works would maintain a dynamic behavior. On the other hand, it is expected that, in time, the depreciation of the peso in real terms will have a positive impact on the behavior of exporting sectors, as well as on those competing with imports. 

• Imports in US dollars in April show a significant reduction. This adjustment process is expected to continue due to the moderation of growth in domestic spending, the effects of the depreciation of the peso in real terms,  and the fall in some international prices.

• Inflation decreased in May, reaching 4.41%, a number lower than had been forecast by the market average and the technical staff at the Central Bank. The slowdown of inflation is explained mainly by the lower pace of increase in the price of foodstuffs. Annual variations in the prices of regulated goods and services and of tradable and non-tradable goods (excluding food and regulated goods) increased, and are at the top of the target range.

• The average of core inflation completed eight consecutive months increasing, registering 3.99%. One and two-year inflation expectations by market analysts and those embedded in public debt bonds to 2, 3, and 5-year horizons are still between 3.0% and 3.5%. 

In summary, the slowdown that began in late 2014 continues in 2015. Inflation decreased, and its expectations are still near 3.0%. Domestic expenditure continues its process of adjustment due to the slowdown in national income. The Board will continue to monitor the size of this adjustment and its consistency with long-term income, sustainability of the external deficit, and, in general, macroeconomic stability. Similarly, the Board reaffirms its commitment to maintaining inflation and its expectations anchored to the target, acknowledging that there is a transitory increase in inflation.

The Board will continue monitoring carefully the behavior and projections of economic activity and inflation in the country, those of asset markets, and the international situation. Also, the Board reiterates that the monetary policy will depend on the information available.

Bogotá.