In order to implement the monetary policy, it is necessary to determine the desired inflation target and the policy instruments to be used. Starting in 2010, the Board of Directors of Banco de la República adopted the long-term inflation target that had been proposed since the beginning of the Inflation Targeting Strategy. This target corresponds to an inflation range of 3.0% ± 1 percentage point, measured through the annual variation in the Consumer Price Index prepared by DANE.
Regarding the monetary policy instruments needed to achieve the inflation target, the Central Bank mainly uses auctions of Repo operations by which the Bank supplies liquidity to the banking system through one-day credits and, in some cases, on a short-term basis. The banks support these loans with public debt bonds (TES) with repurchase agreements on the day of the closure of the operation. In some cases, when the economy presents excesses in the primary liquidity market, the Central Bank uses auctions of remunerated deposits that do not constitute bank reserves (DRNCE) to drain these excesses. In both cases, the interest rate for these operations is determined by the policy rate decided by the Board of Directors in its monthly meetings.