At today’s meeting, the Board of Directors of Banco de la República decided to raise the benchmark interest rate by 25 bp, placing it at 4.5%. The following aspects were taken into consideration by the Board in reaching this decision.
- It is estimated the Colombian economy will grow by about 5% in 2014, propelled by strong domestic demand. The unemployment rate continues to fall in a context of strong growth in salaried employment.
- In the first half of the year, Colombia's trading partners posted less economic growth than anticipated. However, the coming quarters are expected to see more momentum in external demand, supported mainly by the recovery in the United States economy.
- The decline in oil production with respect to last year and the downturn in international crude oil prices imply less revenue from this source, which can affect the performance of domestic demand.
- In July, annual consumer inflation rose by 10 basis points to 2.89%. In contrast, the average of the four core inflation indicators monitored by the Bank declined for the second consecutive month and was 2.58%. The forecasts for inflation by December and forward inflation expectations at one year or more are around 3%.
- The annual increase in bank lending has declined during the last two months, even though pass-through of the benchmark rate hikes to interest rates on lending and savings has been low.
In short, the economy is adjusting to the change in the stance of monetary policy that began in March. It is hoped the benchmark rate increase, with this 25 bp increase, will keep inflation and inflation expectations close to the 3% target and economic activity at its potential level.
The Board of Directors will continue its careful monitoring of performance and projections with respect to economic activity and inflation in Colombia, asset markets and the international situation. Lastly, it reiterated that monetary policy will depend on available information.