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 at today´s session decided to maintain the benchmark interest rate at 4.5%. In order to reach this decision, the Board mainly considered the following issues:

• Global economic growth continues to be weak and uneven. While the recovery of the United States continues and is consolidating, growth in the euro zone and Japan continues to be weak. Emerging countries are expanding at a slower pace, or at historically lower rates. Thus, it is likely that in 2015 the average growth of our trade partners be lower than expected in previous months.
• International oil prices have fallen significantly in past months, and their current level is more than 50 percent below that of mid 2014. Given that this phenomenon results from a strong increase in oil supply, it is probable that its net effect upon global economy be is positive. Nevertheless, its effects will be heterogeneous. While oil importing countries will benefit from this, exporting countries will be affected negatively by the fall in their incomes and the pressure on their public finance and external balance. 
• As an exporting country, the fall in the price of oil affects Colombia negatively. The adverse effect on the terms of trade is reflected on the fall in national income, with implications for the trade balance and public finance. These impacts will be partially mitigated by the depreciation of the peso versus the US dollar and by the positive effect that the fall in the prices of oil could have on global growth.  
• In Colombia, the data for the fourth quarter of 2014 suggest that domestic demand continued to be dynamic. With this information, the technical staff estimates for the fourth quarter a growth rate of 4.0%, implying a 4.1% growth in the second semester. Although this outcome is lower than the one registered in the first semester, it continues to be an outstanding performance in the region.  Considering this, it is expected that for 2014 growth may be between 4.5% and 5.0% with 4.8% as the most probable outcome. 
• For 2015, growth is projected between 2.0% and 4.0%, with 3.6% as the most probable outcome. This fall reflects a domestic demand growth consistent with a lower national income.  The strong fall in the price has already been reflected on cuts to investment programs in this sector. 
• By the end of 2014, annual inflation posted registered at 3.66%, within the target range established for the year (3.0% ±1 pp). The deviation from the mid-point is basically explained by the correction of transitory falls in some prices and by temporary increases in others. During the same month, the average of the four core inflation indicators was 3.06%. 
• Analysts' one-year inflation expectations and those derived from public debt bonds for longer horizons are at the top part of the target range. 
• The depreciation of the peso has been particularly strong, reflecting the fall in oil prices. It is expected that the depreciation of the peso is temporarily transferred to the change in the CPI of tradable goods. At the same time, this represents a stimulus for exports and for sectors competing with imports and moderates the negative impact of the oil price shock on the country's external and fiscal accounts.

In all, domestic demand continues to be dynamic close to the full use of the productive capacity. At the same time, inflation and its expectations are slightly above 3.0%. This takes place within 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, January 30, 2015