The Board of Directors of Banco de la República at today’s meeting decided to maintain the benchmark interest rate at 4.25%

The Board of Directors of Banco de la República, in its meeting today, decided to maintain the benchmark interest rate at 4.25% For this decision, the Board mainly took into account the following aspects:

• In June, inflation increased slightly, reaching 3.2%. Food as well as the groups of goods and services that were most affected by the exchange rate contributed the most to the increase of inflation. In the same month, all core inflation indicators declined, and their average stood at 3.33%.
• Inflation expectations recorded slight changes and remain above the 3.0% target. Analysts’ inflation expectations stand, on average, at 3.37% and 3.33% for December 2018 and 2019, respectively. Those embedded in public debt bonds to 2, 3, and 5 years stand between 3.0% and 3.4%.
• Growth of the country’s trading partners continues to be dynamic, driven by developed economies and by the major emerging economies. Oil prices remain at levels that surpass the averages recorded in the last two years. The increase in the country's terms of trade and a better dynamics expected from external demand would continue favoring the recovery of the country’s external income. In this environment, the exchange rate has been relatively stable.
• GDP results for the first quarter and the indicators of economic activity for the second quarter suggest that the economy would have continued growing slowly, albeit faster than in 2017. With these results, the technical staff of the Central Bank maintained its growth estimate for 2018 at 2.7%. However, the Bank's technical staff estimated that the productive capacity of the economy is still underused, and that this situation would widen in 2018.
• The new figures of the external sector for the second quarter suggest that the adjustment of the external balance is somewhat slower than expected. However, for all of 2018, the forecast of the current account deficit as a share of GDP is still lower than in 2017.

Based on this information, the Board considered the following factors for its decision:

• Uncertainty regarding the pace of recovery of economic activity. On the one hand, the excess capacity is expected to expand in 2018. On the other, should the price of oil remain at current levels for an extended period of time, or should the increasing trend in confidence persist, the dynamics of aggregate demand could be better than expected. Uncertainty in this regard is high.
• The stability of inflation and its expectations above the target, and some risks that could push inflation upwards and delay its convergence to 3.0% (among them, a stronger-than-expected depreciation of the peso that could be passed-through to domestic prices). Again, uncertainty on these events is high.

In this environment, upon assessing the situation of the economy and balance of risks, the Board of Directors deemed appropriate to maintain the benchmark interest rate at 4.25%

The Board will continue to carefully monitor the behavior of inflation and the forecasts for economic activity and inflation in the country, as well as the international context. Finally, the Board reiterates that the monetary policy will depend on the availability of new information.

The decision to maintain the benchmark interest rate at 4.25% was approved unanimously.

Bogotá,