Banco de la República maintains the benchmark interest rate at 4.25%


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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 August, inflation and the average of core inflation indicators stood at 3.1% and 3.8%, respectively. These figures are similar to those recorded a month ago and below those registered a year ago. The food items and the goods and services most affected by the exchange rate are the CPI groups that contribute to keep inflation close to its 3.0% target. Other large groups, (i.e., non-tradables and regulated items) press inflation upwards.

  • Inflation expectations recorded slight changes and remain above 3.0%. Analysts’ expectations are, on average, 3.2% and 3.3% for December 2018 and 2019, respectively. Those embedded in public debt bonds to 2, 3, and 5 years stand between 3.3% and 3.4%.

  • The average growth of the country's trading partners remains dynamic, driven mainly by the developed economies. The international price of oil and the terms of trade continued to increase and continue driving the national income. The measures of risk premia for Colombia have not recorded significant changes and remain at historically low levels, despite the increase in the risk premia for some emerging countries that exhibit important macroeconomic imbalances.

  • GDP growth in the second quarter of 2018 was close to the estimate. The economic activity indicators available for the third quarter suggest that the economy would have continued growing slowly, albeit somewhat faster than in the first half of the year. With these results, the technical staff of the Central Bank maintained its growth estimate for 2018 at 2.7%. However, the Central Bank's technical staff estimated that the under-utilization of productive capacity persists, and that by the end of 2018 it will be something higher than in 2017.

  • For 2018, a current account deficit (as a share of GDP) similar to the one recorded in 2017 is forecast.

 

 

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

 

  • Weakness of the economic activity and uncertainty over its pace of recovery.

  • The stability of observed and expected inflation at levels close to 3.0%.

  • The effects of changing international financial conditions on the Colombian economy.

 

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.

Friday, 28 September 2018
15:54

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