The Board of Directors of Banco de la República at today’s meeting decided to maintain the benchmark interest rate at 7.75%

The Board of Directors of Banco de la República at today’s meeting decided to maintain the benchmark interest rate at 7.75%. For this decision, the Board mainly took into account the following aspects:
 

• In August, annual consumer inflation and the average of core inflation indicators decreased, reaching 8.10% and 6.56%, respectively. Analysts’ inflation expectations to one and two years also fell, posting at 4.35% and 3.61%, respectively, and those embedded in public debt bonds to 2, 3, and 5 years are between 3.4% and 3.6%.
• The normalization of the weather and agricultural supply generated reductions in food prices in August, and the annual rate of increase of this group is expected to decrease at least until the first quarter of 2017. The behavior of the prices that were most affected by the exchange rate suggests that pass-through of the devaluation of the peso to inflation is fading. 
• The average growth of Colombia's trading partners in 2016 is likely to be lower than estimated a month ago. Regarding the United States, a slow tightening of its monetary policy is still projected. The price of oil remains above the levels recorded at the beginning of the year, and the prices of some international commodities imported by Colombia have fallen. With this, the terms of trade have increased, and are close to the average observed in 2015. 
• The economic activity indicators for the third quarter, some of them heavily affected by the trucking strike, suggest that economic growth will be lower than the one recorded in the first half of the year. These figures suggest a downward bias in the forecast of the most likely growth rate for all 2016 (2.3%) by the technical staff of the Central Bank. 
• In the first half of 2016, the current account deficit stood at USD 6,284 million, equivalent to 4.8% of GDP, lower by USD 3,233 million, and 1.5 percentage points versus the records a year ago. These results, together with the new foreign trade figures, indicate that the external deficit for all 2016 could be lower than forecast a month ago (US 15 billion, equivalent to 5.3% of GDP).   
   

In all, the Colombian economy continues to adjust to the strong shocks recorded since 2014, and the current account deficit is narrowing gradually. The effects of the transitory supply shocks that have affected inflation and inflation expectations have begun to reverse, and this trend is expected to continue. This, together with the monetary policy actions taken so far, should lead inflation to its target range in 2017.
 

In this environment, after assessing the risk balance for inflation and growth, the Board of Directors deemed appropriate to maintain the benchmark interest rate unaltered. New data on the behavior of prices and aggregate demand will provide more information about the speed of the expected convergence of inflation to the target, and the intensity, nature, and persistence of the economic slowdown.
 

The Board will continue to monitor the adjustment of expenditure and its consistency with the long-term income level, the sustainability of the external deficit, and, in general, macroeconomic stability. Also, it reaffirms its commitment to maintain inflation and its expectations anchored to the target, acknowledging that there has been a transitory increase in inflation.
 

The decision to maintain the benchmark interest rate unaltered was approved by the seven members of the Board.

Bogotá,