Monetary Policy Report - October 2019

Office of the Deputy Technical Governor; Vargas-Herrera, Hernando; Office of the Deputy Governor for Monetary Policy and Economic Information; Ospina-Tejeiro,Juan Jose; Programming and Inflation Department; Huertas-Campos, Carlos Alfonso; Cobo-Serna, Adolfo León; Caicedo-García, Edgar; Cote-Barón, Juan Pablo; Martínez-Cortés, Nicolás; Rojas, Carlos Daniel; Garavito-Acosta, Aarón Levi; Calderón-López, Luis Hernán; González, Camilo; Salazar-Diaz, Andrea; Galeano-Ramírez, Franky; Gaitán-Maldonado, Celina; Restrepo-Ángel, Sergio; Parra-Amado, Daniel; Hamann-Salcedo, Franz Alonso; Pérez-Amaya, Julián Mauricio; Romero-Chamorro, José Vicente; Forero, Santiago; Moreno, Nicolás; Guarín-López, Alexander; Anzola, César; Méndez-Vizcaíno, Juan Camilo

Monetary Policy Report - October 2019

Report (4.01 MB)

Box 1. Banco de la República’s Monetary Policy Decision-Making Process and Dissemination Strategy (196.17 KB)

Box 2. The 4G Model (133.65 KB)

Monetary Policy Report - October 2019

Date published

2020-01-24

Document language

eng

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Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva.

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

Abstract

Monetary Policy in Colombia As per its constitutional mandate, Banco de la República must ensure that the purchasing power of the currency is maintained in coordination with the general economic policy. In order to fulfill this mandate, the Board of Direc¬tors of Banco de la República (hereinafter BDBR) adopted a flexible inflation targeting scheme, by which monetary policy actions (MP) seek to lead infla¬tion to a specific target and achieve the maximum levels of sustainable out¬put and employment. The flexibility of this scheme allows the BDBR to maintain an adequate balance between the achievement of the inflation target and the purpose of smoothing output and employment fluctuations around their sustainable growth path. The BDBR set a 3.0% inflation target based on the annual variation in the consumer price index (CPI). In the short term, inflation may be affected by factors that are not under control of the monetary policy such as changes in food prices due to climatic phenomena. To incorporate this, the BDBR announces, along with the inflation target, a ±1 percentage point range (i.e., 3.0 ± 1 pp) which is not a target of the monetary policy, but reflects the fact that inflation can fluctuate around the target, and not always be equal to 3.0%. The main instrument of the BDBR to control inflation is the policy interest rate (overnight repo rate, or benchmark interest rate). Given that monetary policy actions take time to have a full effect on the economy and inflation, in order to determine their value, the BDBR assesses the inflation forecast and inflation expectations vis-à-vis the inflation target, as well as the current situation and outlook of the economy. The BDBR meets once a month, but it produces monetary policy decisions only in eight of its meetings (in January, March, April, June, July, September, October, and December). In the remaining four months (February, May, Au¬gust, and November), in principle, no such decisions are made. At the end of the meetings where monetary policy decisions are produced, a press release is published and a press conference by the Governor of the Central Bank and the Minister of Finance is held. The minutes of the meeting describing the positions that led the Board to its decision are published on the following business day. Additionally, the Monetary Policy Report (MPR) produced by the Central Bank’s technical staff is published in January, April, July, and Oc¬tober, together with the minutes. On the Wednesday of the week following the Board meeting, the Governor clarifies concerns about the minutes, and the Bank’s Deputy Technical Governor presents the MPR. This dissemination scheme seeks to deliver relevant and up-to-date information that contributes to better decision-making by the agents of the economy.
Box 1. Banco de la República’s Monetary Policy Decision-Making Process and Dissemination Strategy
Box 2. The 4G Model. Authors: Alexander Guarín, José Vicente Romero