Inflation targeted at 4% for 2008 and the intervention interest rate at 9.50%

At a meeting today, the Board of Directors of Banco de la República set the inflation target range for 2008 at 3.5% to 4.5%, with 4% as the specific target for legal effects. This decision is consistent with the announcement in November 2006.

It also decided the midpoint for target inflation in 2009 will be between 3% and 3.5%, which is within the long-term range for inflation (2% - 4%).

The Board believes gradual and careful management of the disinflation process is coherent with Banco de la República’s constitutional mandate to preserve the buying power of domestic currency and to contribute to sustained growth in output and employment.  It also emphasized how important it is, for the sake of good economic performance, that economic agents keep these targets in mind with respect to future price and wage adjustments.  

Moreover, in an environment characterized by sharp growth in aggregate demand and credit, high use of installed capacity, and an international context marked by a moderate slowdown in the world economy, the Board unanimously decided that an additional hike in the intervention interest rates would be necessary to achieve these targets.   Consequently, it raised the Bank’s intervention rate by 25 basis points, from 9.25% to 9.50%.

Based on available data, the Board believes 9.50% interest is close to a level consistent with meeting the targets announced for inflation.  This rate also is regarded as coherent with maximum sustainable economic growth.

Finally, the Board reiterated that monetary policy in the future will depend on new data and its impact on projected inflation.