The Board of Directors of Banco de la República at today’s meeting decided to increase the benchmark interest rate by 25 bp to 7.25%. For this decision, the Board mainly took into account the following aspects:
In all, the Colombian economy is adjusting in an orderly manner to the strong external shocks recorded since 2014. The risk of an excessive deceleration of domestic demand is moderate, and there is still an excess of expenditure with respect to national income, which is reflected in a high current account deficit. Inflation has accelerated on account of the depreciation of the peso, El Niño, and by the activation of some indexation mechanisms.
In this environment, the response of the monetary policy must acknowledge that the shocks which have affected prices are transitory, while being oriented to ensure convergence of inflation to the target of 3.0% ±1 percentage point in 2017. With this purpose, the Board deemed appropriate to increase the benchmark reference rate by 25 basis points. The adjustment of the monetary policy will also contribute to the correction of the external deficit.
The Board will continue to monitor the expected adjustment of expenditure and its consistency with the income level for long-term sustainability of the external deficit, and, in general, for macroeconomic stability. Similarly, it reaffirms its commitment to keep inflation and inflation expectations anchored to the target, acknowledging that there has been a transitory increase in inflation.
Finally, the Board announced that it will not summon a new auction of options to decumulate foreign reserves, and will continue to use the intervention mechanisms according to their suitability in order to achieve the Central Bank's policy objectives.
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