Banco de la República maintains the benchmark interest rate at 4.75%

The Board of Directors of Banco de la República, during its session today, decided to maintain the intervention interest rate at 4.75%. In making this decision, the board primarily considered the following aspects:

• In November, inflation increased more than expected and stood at 4.12%. With the exception of the regulated items group, all the large CPI components registered somewhat higher annual variations than projected. The average of the four core inflation indicators stopped descending and stood at 4.54%.
• Inflation expectations registered slight changes. Analysts´ expectations for December of 2017 and of 2018, on average, stand at 4.01% and 3.46%, respectively. Those derived from public debt bonds remain above 3.0%.
• The direct effects of the strong transitory supply shocks that diverted annual inflation from its target have been diluted. The effects of indexation of prices and the increase of indirect taxes from the beginning of the year are expected to diminish, and with that, inflation and the core inflation indicators to converge towards the target.
• The current account has continued its gradual and orderly adjustment. For the third quarter the current account deficit was 3.4% of GDP.
• External demand continues recovering, driven mainly by developed economies. Oil prices are maintaining levels above the averages registered in the last two years. Should this trend continue, the terms of trade would keep improving, and along with the greater dynamics expected from external demand, these would continue favoring the recovery of the country´s external income.
• In the United States, the Fed increased its policy interest rate. In Colombia, one of the risk rating agencies reduced the sovereign debt credit rating. Neither of these decisions has had significant effects on the country´s risk measures, the TES interest rates or the exchange rate.
• The country´s economic activity remains weak. Further, new data confirm the persistence of the economic growth below the potential, reason why the underutilization of the installed capacity of the economy is expected to continue expanding.

The Board of Directors noted that the risk balance is similar to that considered in the previous meeting and highlighted that, with the reductions undertaken in previous months, the space to continue lowering the benchmark interest rate has been reduced. As a result, the board deemed it appropriate to wait for more information and maintain the benchmark interest rate unaltered at 4.75%.

The decision to maintain the interest at 4.75% was unanimous.

Bogotá,