The Banco de la República reduces its intervention interest rate by 100 basic points

At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points.  Thus, the base rate for expansion auctions will be 8%.

The annual inflation rate for the consumer in January was 7.18%, the third consecutive monthly fall.  This decline, greater than what was expected, was seen in most of the items of basic household goods and especially the foodstuff group.   The indicators for basic inflation also fell during the month, and inflation expectations lay within the target range set by the Board (5%+/- 1/2 percentage point).

The reduction of inflation and inflation expectations confirm that the weakness of internal and external demand and the fall in the international prices of basic products are being reflected in weaker inflationary pressures. The Board now has more confidence that annual inflation will continue to fall in the following months and will lie  within the target range at the end of 2009.

The world economy continues to present a negative panorama despite the strongly expansionist policies of many countries During the month the decline in growth of most of the developed and emerging economies was confirmed, as were the weaker inflationary pressures, which has allowed many central banks to reduce their reference rates. What stands out is that the currencies of the region have shown significant depreciations, especially in Mexico and Colombia.

The new information that has become available confirms the weakening of productive activity in Colombia. The latest data on industry and commerce continue to register important declines, to which is added the effects of a greater deterioration of world activity on productive activity, in the form of lower exports and terms of trade, a decline in levels of confidence and more expensive capital flows.

These conditions allowed the Board to reduce the intervention rate by a quicker rhythm than that employed in the previous two months, without this implying similar reductions in the future. In this way, monetary policy and the devaluation of the peso, insofar as they do not compromise the attainment of the inflation targets, have supported demand and the future growth of the economy.

The Board will continue to undertake a careful monitoring of the international situation,  the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá,