A regular meeting of the Board of Directors of Banco de la República took place in the city of Bogotá D.C. on Friday, June 30, 2017. 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 monthly Monetary Policy Report for May 2017 and in the statistical annex. (Only available in Spanish).
1. MACROECONOMIC CONTEXT
In all, for 2017, the strong transitory shocks that diverted inflation from its target are expected to continue fading in an environment of a weak economic activity. The 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 the information published since the previous meeting of the Board of Directors shows that deterioration of the productive activity has been more pronounced than had been anticipated. Additionally, there are signs of deterioration in the growth of the financial system, which reflect this weakness of productive activity. On the other hand, the pace of inflation has continued to decline, although it is still above the target range, particularly in the case of the various core inflation indicators. Under these conditions, they agreed on the benefit of a further reduction in the benchmark interest rate to continue reducing the contractionary trend of the monetary policy.
Four Board Members voted for a 50 bp reduction of the benchmark interest rate. They considered that the prominent deterioration of productive activity and the negative expectations of economic agents regarding growth demand faster stimuli that contribute to economic recovery. In their view, although the inflation indicators still exceeded the target range, they have moved in the right direction.
The other three members of the Board voted for a 25-bp reduction to the benchmark interest rate. To their judgment, while deterioration of the productive activity requires a further reduction of the benchmark interest rate, the estimates by the technical staff of the Central Bank are still uncertain as to interest rate path consistent with the reduction of inflation towards 3.0% in 2018. Additionally, they also considered that a gradual reduction allows for better transmission of monetary policy.
3. POLICY DECISION
The Board of Directors of Banco de la República at this day’s meeting decided to reduce the benchmark interest rate by 50 bp, placing it at 5.75%. The decision to reduce the benchmark interest rate by 50 bp was approved by four (4) members of the Board. The remaining three (3) Board Members voted for a 25 bp reduction.
Bogotá D.C., 14 July 2017