The Banco de la República has fixed the inflation target for 2010 in the long term range, announces the purchase of dollars and TES as a mean of maintaining end of the year liquidity and keeping the benchmark interest rate unchanged

In their meeting today, the Board of Directors of the Banco de la República agreed that the inflation target for 2010 would be that of the long term target. Consequently, the inflation target will be the 2% to 4% range with 3% as the precise target for legal purposes. The Board thinks that for the time being economic conditions will allow inflation to stay within the long term target range which will contribute to anchoring inflation expectations at that level. A low, stable inflation is the best contribution that monetary policy can make to the sustained growth of the economy, employment and national competitiveness.

The adopted inflation target takes into account the following:

The result of inflation at the end of the year which will be close to 3%. The preceding–a result of the downswing in prices for commodities in 2009 and the marked weakening of domestic and foreign demand caused by the international financial crisis.

The expectations of slow growth in the world economy in 2010 and 2011 and the downward trend of global inflation.

The recent performance of international prices for commodities, the demand for our main export products in a context of slow growth for our trading partners and possible future supply shocks in food and regulated prices.

The lagged effect of the expansionary monetary policy followed by the Board of Directors, the projections of the inflation models and agents’ inflation expectations.

After evaluating the available information, the Board decided to keep the base rate unchanged for expansion auctions. This will remain at 4%.

The Board anticipates that it will be possible to reach the inflation target set for 2010 without upward pressure on the benchmark interest rate in the near future.

The Board also decided that most of the end of the year monetary expansion will be dealt with the purchase of dollars and TES to the amount of three trillion pesos.  The rest will be provided through a reduction in the deposits that the General Treasury keeps at the bank and through repos.

The Board will continue to carefully monitor the international situation, the performance of and projections for inflation and growth and reiterates that monetary policy will depend on the new information that is available.