A regular meeting of the Board of Directors of Banco de la República took place in the city of Bogotá D.C. on Thursday, December 14, 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 November 2017 and in the statistical annex (Only Available in Spanish).
1. MACROECONOMIC CONTEXT
In summary, to December 2017, inflation is expected to finish slightly below 4.0% and decline in the first quarter next 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 economic activity that continues to be weak. Monetary policy actions undertaken so far, which consider these effects, should strengthen convergence of inflation to its target.
2. DISCUSSION AND POLICY OPTIONS
The Board of Directors decided unanimously to maintain the benchmark interest rate unchanged at 4.75%. In making this decision, they considered that inflation for November was above that forecast by Banco de la República´s technical staff, that the average of the core inflation indicators stopped falling, that the inflation forecasts continue showing a decrease for the first quarter of 2018, and that this trend is expected to strengthen. Although the inflation figure for November was not good, there is a high probability that inflation will be close to 4.0%, or even slightly below, by the end of 2017.
They also referenced the weakness of demand, which is reflected both in the GDP data for the third quarter and in the industry, commerce and consumption surveys available for the third quarter. On the external front, the good performance of total exports is highlighted, driven mainly by oil and carbon, as well as by non-traditional exports.
The Board Members also agreed that the space to decrease the benchmark interest rate has been reduced. For this reason, they considered it appropriate to wait for more information on the behavior of inflation, output and the exchange rate before reducing the policy rate.
As for the credit rating reduction announced by S&P, the Board observed that the market has had no significant reaction that may alter in a relevant way the inflation and product forecasts.
3. POLICY DECISION
The Board of Directors of the Central Bank of Colombia unanimously decided to maintain the benchmark interest rate unchanged at 4.75%.
Bogotá DC, 28 December 2017