The Board of Directors of Banco de la República maintains the Benchmark Interest Rate at 4.5%

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

 

• In June, annual consumer inflation remained relatively stable at 4.42%. The average of the four core inflation indicators increased for the ninth month in a row (4.14%). 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 close to 3.0%.  
• The slower dynamics in food supply, the pass-through of nominal depreciation to consumer prices, and the increase in the costs of imported raw materials explain, to a great extent, the acceleration of inflation. 
• Depreciation of the Colombian peso and the persistence of El Niño may delay the convergence of inflation to the target directly and through the activation of indexing mechanisms. 
• In the US, the data from the first semester of 2015 exhibited moderation in the growth rate vis-à-vis the second semester of 2014. The euro zone and Japan maintain a slow pace of recovery, while the Chinese economy slowed down somewhat more than expected. As for Latin America, the larger economies grow at low or negative rates. These results have entailed a weaker-than-expected domestic demand for Colombian producers than in the previous quarter. 
• The agreement between Greece and its creditors reduced global risk aversion significantly. The US dollar continues strengthening and it is expected that the Federal Reserve will increase its benchmark interest rate this year. 
• The international price of oil decreased, as did the prices for other commodities exported by Colombia. The reduction in the terms of trade has a negative effect on national income, which partly explains the strong devaluation of the Colombian peso vis-à-vis the US dollar.
• The technical staff estimates that economic growth in Colombia for the second quarter of 2015 would be similar to the one registered for the first quarter, considering the data from retail trade, the indicators of confidence of consumers and of retailers, as well as the information regarding economic expectations, imports and the evolution of the external demand for national goods and services. For all of 2015, the most likely growth figure was revised downward, from 3.2% to 2.8%, within a range of 1.8% and 3.4%.

 

In all, inflation remains above the upper limit of the target range and the domestic expenditure of the economy continues adjusting to the lower dynamics of national income. It is expected that the transitory shocks in prices will revert within the horizon of monetary policy in a context in which inflation expectations are anchored to the target. However, the recent depreciation of the Colombian peso could postpone convergence of inflation to the target. 

 

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