The Board of Directors of the Central Bank of Colombia maintains the Benchmark Interest Rate at 4.5%

The Board of Directors of the Central Bank of Colombia in today's session decided to maintain the benchmark interest rate at 4.5%. This decision took into account the following aspects:

• The average growth of Colombia's trading partners in 2015 will continue being low, but somewhat higher than the one registered a year ago. The growth of emerging economies has decreased, while that of advanced economies shows gradual improvements in Europe and Japan, and stability in the United States.
• In 2014, the growth of the Colombian economy (4.6%) was lower than had been projected by the Central Bank of Colombia (4.8%), while that of 2013 was revised from 4.7% to 4.9%.  In turn, GDP expansion in the fourth quarter of 2014 (3.5%) was at the lower part of the forecast range of the Bank's technical staff. 
• Real GDP growth for 2015 is expected to be between 2.0% and 4.0%, with 3.6% as the most likely outcome. The lower expected growth reflects the negative effect of the fall of oil prices on national income, exports, and investment. The amplitude of the forecast range shows the high degree of uncertainty.  
• The depreciation of the peso reflects the general strengthening of the US dollar, the effects of the fall in oil prices, and the size of the current account deficit. The depreciation represents a stimulus for exports and for the sectors that compete with imports, and contributes to moderate the negative impact of oil price on the external and fiscal accounts. Likewise, it increases prices in the short term, especially those of tradable goods.
• Consumer inflation in February registered 4.36%, higher than had been forecast by the market average and by the technical staff of the Bank. This increase was mainly due to the greater pace of increase in the prices of foodstuffs, which are expected to decrease in the second semester, followed by the increase in the prices of tradable goods. The average of core inflation indicators registered 3.53%.
• Based on the estimations by the technical staff of the Central Bank, the Board considers that inflation will converge to its target in the policy horizon. This convergence will begin in the second semester of 2015. 
• Analysts' inflation expectations to December 2015 are at 3.65%, while those to March and December of 2016 stayed relatively stable and close to 3.0%. Those embedded in public debt bonds increased, and are still in the upper half of the target range. 

Summing up, by the end of 2014 the Colombian economy slowed down, starting from an output level that was close to the full use of the productive capacity. This slowdown is expected to continue in 2015. Inflation increased mainly due to transitory factors, and its expectations are above 3.0%. Given that part of the reduction of oil prices and of national income is permanent, domestic expenditure of the economy must adjust. The Board will continue to monitor the size of this adjustment and its consistency with long-term output and macroeconomic stability. Similarly, it reaffirms its commitment to maintain inflation and its expectations anchored to the target, recognizing that there is a transitory increase in inflation.

After carrying out this risk assessment, the Board of Directors deemed appropriate to maintain the benchmark interest rate unaltered, and reiterates that the course of monetary policy will depend on the information available.

Bogotá