Banco de la Republica makes no change in its interest rates

At a meeting today, the Board of Directors of Banco de la República decided, by a majority vote, to leave its intervention interest rate at 9.75%.

Annual inflation was 5.73% in April, which is 20bp less than the month before. As in March, the decline was due to lower prices for perishable foods.  Regulated price inflation continued to register substantial increases as a result of the indexation mechanisms established for certain public utility rates.  The Board emphasized that inflation and expectations of inflation remain above target, as is the case with various core inflation indicators.

External conditions are still favorable for economic growth in Colombia. Recent weeks have seen a sharp rise in international prices for the country’s leading export products, and exports and foreign direct investment have grown at historically high rates. The improvement in the country’s terms of trade stimulates national revenue. The current account deficit in the balance of payments for 2008 is expected to be less than what was forecast several months back. This will help to make economic growth more sustainable.

Available figures show that industry and commerce, two sectors that are highly sensitive to internal demand, registered less growth in March than was forecast by Banco de la República. The latest surveys of the business community also suggest growth in demand is down.  However, more information is needed to identify the risks posed by less economic growth this year and in 2009.

The increase in retail loans continued to slow, as was expected in response to the hike in reserve requirements and in Banco de la República’s interest rate. However, credit (especially retail loans) continues to grow at rates above the nominal GDP increase expected for this year.

The Board believes that meeting the long-range target for inflation is crucial to avoiding a period of economic difficulties in the future.  More moderate growth in internal demand and credit reduces inflationary pressure and allows for sustainable economic growth.

The Board will continue to monitor the international situation, as well as inflation and economic growth, specifically their behavior and forecasts. It reiterated that monetary policy in the future will depend on new information that becomes available.