The Central Bank of Colombia holds its intervention interest rate steady

At a meeting today, the Board of Directors of the Central Bank of Colombia left its intervention interest rate unchanged. Accordingly, the base repo auction rate will remain at 3%. This decision was taken in light of the following factors:

• Annual consumer inflation in May was 2.07%. This is slightly higher than annual inflation in April (9 bp), but less than what was anticipated by the market and by the Central Bank’s technical team.

• Most indicators of core inflation (which does not include the more volatile prices, such those for food) stayed in the lower part of the long-term target range for inflation set by the Board of Directors (3% +/- 1%). Inflation expectations continued to decline.

• The outcome for inflation during the past month is in line 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 in 2011.

• The information received in the last few weeks indicates the Colombian economy will grow at a faster pace than expected, without producing inflationary pressures. The increase in exports, bolstered by recovery in the momentum of the global economy and better terms of trade, confirms the build-up in the Colombian economy, as do other factors such as the increase in consumer and producer confidence, the momentum in a number of leading indicators and the soundness of the financial system.

• The international markets have been quite volatile as a result of the public debt crisis in several European countries.  So far, the effects of that crisis are uncertain. However, it is noteworthy that the Latin American economies show an increasingly stronger recovery accompanied by a build-up in their currencies.

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

After a detailed analysis of the behavior of the exchange rate and its external and internal determinants, the Board of Directors decided to maintain its decision to accumulate US$20 million daily in international reserves up to June 30 of this year. 

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. It reiterated that monetary policy in the future will depend on whatever new information becomes available.

Bogotá, Colombia