Banco de la República Makes No Change in Its Intervention Interest Rate

At a meeting today, the Board of Directors of Banco de la República left its intervention interest rate unchanged.  As a result, the repo auction base rate will remain at 3%.  This decision was taken in light of the following factors.

  • Annual consumer inflation was 2.24% in July, which is less than was expected by the market and by Banco de la República´s technical team.

 

  • The indicators of core inflation (which does not include the prices of particularly volatile items, such as food) declined once again and are still in the lower part of the long-term target range for inflation set by the Board of Directors (3% +/- 1 pp). Inflation expectations remain low.

 

  • The outcome for inflation during the past month is  consistent with the technical team´s forecasts, which suggest  - with a high degree of confidence - that inflation will be within the long-term target range in 2010 and 2011.

 

  • The information received in recent weeks continues to indicate the Colombian economy is growing faster than expected, without generating inflationary pressure. The increase in consumer and producer confidence confirms the build-up in the Colombian economy, as do other factors such as the momentum in a number of leading indicators and the soundness of the financial system.

 

  • The world economy continued to grow, although at a slower pace than during the first half of the year. This is due to the slowdown witnessed in the United States. However, one sees an increasing amount of recovery in the Latin American economies.  On the other hand, the international markets stabilized after the financial crisis in Europe.

 

  • Accordingly, the Colombian economy could see favorable terms of trade during the remainder of the year and in early 2011, along with larger capital flows, low international interest rates and a weak recovery in external demand for our non-traditional products.

 

  • Under the current circumstances, there is a tendency for the peso to appreciate against the dollar as a result of the external situation and the momentum in the economy.

 

  • The Board of Directors analyzed the exchange situation and particularly the  use of sterilization instruments in addition to those employed in  the past. The idea is to increase the already extensive capacity for exchange intervention.  The Finance Minister advised the Board of the government´s decision to adopt measures to encourage imports and, in doing so, to increase the demand for foreign exchange and to reduce costs for the productive sector to improve its productivity.

 

  • The Board believes its expansive monetary policy contributes to economic growth.


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

Bogotá, Colombia