A regular meeting of the Board of Directors of Banco de la República took place in the city of Bogotá D.C. on Monday, 29 January 2018. In attendance were Mauricio Cárdenas Santamaría, Minister of Finance and Public Credit; Juan José Echavarría, Governor of the Central Bank; and Board Members Gerardo Hernández Correa, Ana Fernanda Maiguashca Olano, Adolfo Meisel Roca, José Antonio Ocampo Gaviria, and Juan Pablo Zárate Perdomo.
These minutes contain a summary of the outlook on the macroeconomic situation by the technical staff of the Central Bank (section 1), followed by a review of the main discussion regarding monetary policy by the Board of Directors (section 2).
Further detail on the macroeconomic situation prepared by the technical staff from the Central Bank will be presented in the quarterly Monetary Policy Report for December 2017 and in the statistical annex (Only Available in Spanish).
1. MACROECONOMIC CONTEXT
In all, inflation is expected to continue lowering in the first quarter of the year, partly as a result of the reversal of the transitory shocks that have diverted it from its target. This takes place in an environment of a recovering economic activity, but still with excess of installed capacity. Monetary policy actions undertaken so far, which consider these effects, should strengthen convergence of inflation to its target.
2. DISCUSSION AND POLICY OPTIONS
The members of the Board agreed that, with the data observed, the economic recovery has not yet been clearly evidenced. However, agents' expectations have begun to improve moderately. Particularly, they highlighted the good performance of exports, which contributed to a better outcome in the current account deficit in 2017.
On the other hand, they mentioned that inflation forecasts for 2018 continue to converge towards the 3.0% target, although such path is now higher than in the last meeting and has increased the uncertainty about the behavior of several of its components.
Four Board Members voted to reduce the benchmark interest rate. In their opinion, the figures of economic activity were still very weak, with no evidence of recovery. To that extent, and given that inflation projections continue to show convergence to the 3.0% target in 2018, a reduction was suitable in order to provide a stimulus that can be significant to the economy, instead of waiting. However, they considered that the space for such reduction was not very wide due to the risks that still persist of a slower convergence of inflation to the target, and therefore decided on a 25 bp reduction.
The remaining Board Members expressed that the risks of a slower convergence of inflation to its target have increased since the last meeting. The adjustment of the minimum wage for this year, the widespread increase in the different components of inflation at the end of the year, and the persistence of inflation in some groups of goods and services were some of the factors mentioned as a source of greater risk. On the other hand, despite the weak dynamics of the economic activity, they observe improvement in the confidence indicators and in several agents' expectations. Their vote was to maintain the benchmark interest rate unaltered until having more information on the trends of inflation, particularly on its inertial components, in the first quarter of 2018.
All Board Members agreed that, with the information available, this decision completes the cycle of reductions.
3. POLICY DECISION
The Board of Directors of Banco de la República, at today’s meeting, decided by majority to reduce the minimum transitory expansion benchmark interest rate by 25 bp to 4.5%.
The decision to reduce the benchmark interest rate to 4.5% was approved by four (4) members of the Board. The three (3) remaining Board Members voted to keep it unaltered.
Bogotá DC, 9 February 2018