The Central Bank of Colombia Leaves its Intervention Interest Rate Unchanged
In a meeting today, the Board of Directors of the Central Bank of Colombia decided, by a majority vote, to leave its intervention interest rate unchanged. As a result, the repo auction base rate will remain at 4.5%.
Annual consumer inflation was 3.81% in June, having fallen for the eight month in a row. The decline was more than expected and is due, once again, to food and regulated prices. The core inflation indicators continued to decline and expectations for inflation in the medium and long term are near the ceiling of the long-term target range set by the Board (3%+/- one percentage point).
Price performance is an indication that weak internal and external demand, lower inflation expectations and the drop in commodity prices compared to the high point in 2008 are being reflected in less inflationary pressure. The Board expects annual inflation to end the year below the floor of the target range (4.5%).
The world economy is stabilizing. Several economic indicators in the United States suggest a break in the negative trend in output growth in that country. Economic conditions in Europe continue to weaken. Growth in China has strengthened considerably, which has had a favorable impact on commodity prices and on the Asian economies. Growth in most of the Latin American economies continues to exhibit a moderate reduction and a drop in inflation.
The risk premiums of a number of Latin American countries have declined and, once again, the region’s major currencies have appreciated with respect to the dollar. The Colombian peso is no exception and is stronger than expected, fueled as well by the successful placement of Colombian corporate bonds on the international market to finance investment projects. The Board of Directors of the Central Bank is aware of the risks associated with peso appreciation in a climate where external demand is weak and will continue to keep an eye on the exchange market.
In Colombia, new information at hand continues to reflect better indicators of business and consumer opinion and confidence for the second half of this year. The annual growth rates for exports and imports in dollars are negative, and terms of trade are at levels close to those posted in mid-2007. Remittances from abroad have been falling throughout the year.
The drop in lending and deposit rates has been persistent, thanks to the Central Bank’s intervention rate cut. The Board of Directors expects the reduction to continue and to stimulate economic growth. The performance of the financial system is healthy.
The Board of Directors will continue to monitor the international situation carefully, along with the performance and forecasts for inflation and economic growth. It reiterated that monetary policy in the future will depend on whatever new figures become available.
