A regular meeting of the Board of Directors of Banco de la República took place in the city of Bogotá D.C. on Friday, October 26, 2018. In attendance were Alberto Carrasquilla Barrera, Minister of Finance and Public Credit; Juan José Echavarría, Governor of the Central Bank; and Board Members Gerardo Hernández Correa, Ana Fernanda Maiguashca Olano, José Antonio Ocampo Gaviria, Carolina Soto Losada, 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 October 2018 and in the statistical annex (Only Available in Spanish).
1. MACROECONOMIC CONTEXT
In all, a slight increase in inflation due to supply factors is expected for the end of 2018, within a more dynamic economic growth environment than in the previous year, and which would continue in 2019. The monetary policy actions carried out so far should consolidate the convergence of inflation to the target and maintain a favorable path for the expansion of GDP. Uncertainty about external financing conditions and the performance of some emerging economies remains high.
2. DISCUSSION AND POLICY OPTIONS
The members of the Board emphasized the stability of inflation. According to the latest records available, inflation remains slightly above the target. Core inflation indicators remain, on average, about 3.0%, with a downward trend. The Board mentioned that the level of inflation of regulated items remains high.
They also highlighted the increased uncertainty and the risk perception arising from the external context, which has begun to have an impact on Colombia, although moderate in the TES market. In this scenario, it is essential for the monetary authority to continue monitoring the external conditions and the domestic effects of likely shocks.
From the perspective of domestic demand, there was consensus in that uncertainty about the pace of economic recovery increased. Part of this uncertainty is linked to the low dynamics of commercial loans, which reflects a slow recovery of investment. In the opposite direction, the sales and industry indicators are positive.
In this context of a greater international uncertainty albeit with a weaker domestic demand and stable inflation, although slightly above the target, the members of the Board deemed prudent to maintain the current level of the benchmark interest rate.
Some Board Members mentioned that the recent devaluation of the Colombian peso has deviated from other emerging markets. Others argued that the recent adjustment responds to a correction of the revaluation observed in the first half of the year.
Another issue pointed out by some members of the group was the recent decline in the Consumer Confidence Index, which could add uncertainty to the process of economic recovery.
3. POLICY DECISION
The Board of Directors unanimously decided to maintain the benchmark interest rate unaltered at 4.25%.