The Central Bank of Colombia Lowers its Intervention Interest Rate by 50 Basis Points

At a meeting today, the Board of Directors of the Central Bank of Colombia lowered its intervention interest rate by 50 basis points. This decision placed the repo auction base rate at 3.00% and was taken in light of the following factors.

Annual consumer inflation in March was 1.84%, which is 25 b.p. less than in February.  This is far better than the market expected and exceeds the level anticipated in the technical studies done by the Central Bank.

The indicators of core inflation (which does not include the prices of particularly volatile items such as food) continued to decline and are in the lower portion of the long-term target range for inflation set by the Board (3%,+/-1%). Inflation expectations continued to weaken.

The new forecasts developed by the technical team show - with a high degree of confidence - that inflation during 2010 and 2011 will be within the long-term target range.  The risk of increased inflation has declined because El Niño weather had less of an impact on food prices and because appreciation of the peso has reduced the variation in prices for tradable goods.

The good performance of inflation and inflation expectations confirms that Colombians believe the monetary policy is credible and are incorporating the Board’s long-term target into their decisions.

The information received in recent weeks indicates the economy is recovering faster than expected, without generating inflationary pressures. Factors such as added growth in the world economy, more confidence among market players and the momentum in various leading indicators show the strength of that growth.

Despite more economic growth, there is still a negative gap. Coupled with the good performance of inflation and inflation expectations, it allows for an even more expansive monetary policy, without jeopardizing inflation targets and macroeconomic stability.

The Board of Directors will continue to keep a close watch on the international situation and on forecasts and performance with respect to inflation and growth. It reiterated that monetary policy in the future will depend on whatever new information becomes available.

Given the increase in Treasury deposits with the Central Bank, it also was decided at today’s meeting that the monthly sales of TES, instituted to offset the monetary effect of reserve accumulation, would be suspended.

Bogotá, Colombia