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 6%.

The annual inflation rate for the consumer in March was 6.14%, the fifth consecutive monthly fall.  This decline was seen in the prices of both foodstuffs and other basic household goods: what stood out was the deceleration of the prices of non-tradable and regulated goods.  The indicators for basic inflation continued to decline during the month, while inflation expectations continued to lie 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 believes that annual inflation will continue to fall in the following months and may end the year in the target range.

The world economy deteriorated more than it was expected to in the first quarter of 2009. While some industrialized countries show signs of stabilization, it is expected that the negative effects of the world crisis will last throughout the year. In Latin America the generalized contraction of industrial production and the fall of inflation is an established fact. What stands out is that the strong devaluation of Latin American currencies registered at the beginning of 2009 has corrected itself.

The available information shows a similar behavior in the Colombian economy, with a weaker dynamic in exportations and the consequent weakening of growth. The latest data on industry and commerce signal strong declines. However, the financial system continues to show a healthy performance. In these conditions, and taking into account the low level of utilized capacity, it is expected that the country´s inflation will continue to fall.

The new reduction of the intervention interest rate, added to those realized since December 2008, have stimulated economic growth. It has been possible to make these policy decisions rapidly, considering that recent developments in Colombia and the world create a balance of risks  that tends to be low, both for economic activity and inflation.

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,