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Banco de la República Leaves the Benchmark Interest Rate at 3.25%

At its meeting today, the Board of Directors of Banco de la República agreed to leave the benchmark interest rate at 3.25%.  The following relevant factors were considered by the Board in reaching this decision.

• On the international scene, the economic indicators for the first quarter of the year show modest growth in the United States, recession in Europe, and a slight slowdown in China.  In Japan, the central bank announced a strong monetary stimulus program.

• If the current trends in the international economy were to continue throughout the year, terms of trade and average growth for Colombia's trading partners probably will be somewhat less than in 2012. As a result, the external impulse to aggregate spending would not be as much as in past years.

• The first-quarter data suggest economic activity in Colombia has slowed compared to what was observed in 2012. On the demand side, the rate of growth in household consumption would have declined, as evidenced by the changes in the indicators for retail trade, household confidence and credit. On the supply side, the available indicators for industry continue to show deterioration.  United States exports in dollars fell year on year in February, mainly due to mining exports and those affected by supply shocks in the coal sector. In contrast, industrial exports rose at a good pace.

• The recent performance of several components of aggregate spending and the effect of fewer working days in the first quarter compared to the same period last year have made it particularly difficult to interpret current economic trends and to forecast economic activity.  However, increased growth in the economy throughout the year is expected to the extent that aggregate spending reacts to the measured adopted earlier with respect to monetary policy and the programs announced recently by the national government. The Bank's technical team forecasts between 3% and 5% GDP growth for all of 2013, with 4.3% being the most likely figure.

• In March, annual inflation (1.91%) accelerated slightly and there were no significant changes in the measurements of core inflation. The average of these measurements as well as most indicators of inflation expectations are below target (3%).

• By March, the policy interest rate cuts had passed through to the nominal interest rates in the market.  Interest on consumer lending, preferential loans and micro-credit reacted to a similar degree or more than the Bank’s rate, while interest rates on ordinary commercial loans, mortgages and credit card lending were slower to respond. However, recent weeks have seen a significant reduction in interest rates on home mortgages. In real terms, rates have declined less because of the sharp drop in inflation and inflation expectations.

• Growth in the loan portfolio continued to weaken. So far this year, there has been a slowdown in commercial lending in pesos, but an increase in financing through corporate bond issues, together with more external borrowing.  Lending to households (consumer and mortgage loans) also grew less, but at rates superior to those of nominal GDP.

• By December, the price indexes for new and used homes continued to rise at elevated rates, reaching record highs.

In short, the Colombian economy currently is expanding below its potential and inflation is under 3%. The monetary and fiscal policy measures adopted in 2013 will help to place output near the economy’s productive capacity and move inflation towards the long-term target. In this context, an assessment of the risk balance indicates the need to keep the policy interest rate at 3.25%, while awaiting more information.

The Board will continue its careful monitoring of performance and projections with respect to economic activity and inflation in Colombia, asset markets and the international situation.  It reiterated that monetary policy will depend on new information as it becomes available.

Bogotá,  April  26, 2013

Banco de la República Lowers the Benchmark Interest Rate by 50 Basis Points

At its meeting today, the Board of Directors of Banco de la República agreed to lower the benchmark interest rate by 50 basis points. In doing so, it placed the base overnight rate for expansion auctions at 3.25%.  This decision was taken in light of the fact that the Colombian economy is growing below its potential and probably will operate below its productive capacity in the coming quarters. Moreover, actual inflation and forecast inflation are under the 3% target, and the current context is one where pass-through of the interest rate cuts does not appear to be as quick as desired.

The Board of Directors considered the following relevant factors in reaching this decision:

• Colombia’s trading partners are likely to grow less than expected. If this provides to be the case, the contribution to the country’s economic growth stemming from external demand would remain low.  Moreover, if the trend observed in prices for Colombia’s major exports continues, terms of trade would average less in 2013 than they did last year. Consequently, aggregate spending in 2013 would see no additional boost from an increase in national revenue.

• The new data on economic growth in 2012 (4%) show a slowdown from the high levels witnessed in 2011 (6.6%). The major loss in momentum came during the second half of the year and was explained largely by a significant reduction in investment growth. The rise in private consumption slowed during 2012, reaching rates similar to its historical average. The increase in exports also declined compared to 2011, with a significant drop during the fourth quarter.

• The explanation for the shocks to investment in the second half of 2012 is complex and may be due to a number of reasons, as indicated by the fact that all the components of this aggregate slowed during the final six months of the year.

• As for the first quarter of 2013, the deterioration in trade expectations and the drop in the consumer confidence index and auto sales suggest less momentum in private consumption.  The value of exports in dollars during January was similar to the figure posted a year earlier, and industrial exports saw positive annual growth. However, indicators of business confidence suggest industry continues to contract. This momentum denotes current economic growth below potential and, hence, an increase of the shortcomings with respect to use of industrial productive capacity.

• The decline in annual inflation from 2.0% in January to 1.8% in February was similar to what the technical team predicted. This slowdown is explained largely by the reduced rate at which food prices increased, mainly those for processed foods. All measurements of core inflation declined as well.  The average for these measurements is below the target (3%), as are inflation expectations. The recent decline in international prices for energy and other commodities means less pressure on domestic inflation.

• Banco de la República’s interest rate cuts have passed through to interest rates on deposits and loans in the financial system. However, real interest rates have not fallen to the same extent, thanks to the sharp drop in inflation and inflation expectations.

• Growth in the loan portfolio continued to ease.  There has been a slowdown in commercial lending in pesos so far this year, but an increase in financing through corporate bond issues, coupled with more foreign borrowing. Household lending (consumer loans and home mortgages) continues to grow less, but at rates higher than nominal GDP growth. The continued slowdown in the pace of leveraging by companies and households reduces the risk of generating financial excesses during the current expansionary phase of monetary policy.

In this context, an assessment of the risk balance points to the advantage of lowering the intervention interest rate by 50 basis points. In doing so, macroeconomic policy is expected to be consistent with economic growth near its potential. 

The Board will continue its careful monitoring of performance and projections with respect to economic activity and inflation in Colombia, asset markets and the international situation. Finally, it reiterates that monetary policy will depend on new information as it becomes available.

Bogotá, March 22, 2013

Banco de la República Lowers the Benchmark Interest Rate by 25 Basis Points.

At its meeting today, the Board of Directors of Banco de la República decided to lower the benchmark interest rate by 25 basis points and, in doing so, placed the base overnight rate for expansion auctions at 3.75%. The decision took into account the fact that the Colombian economy is growing below its potential, observed and forecast inflation are under the 3% target, and there are no signs of upward pressure on inflation in the near future.

The Board of Directors decided as such in light of the following relevant factors:

• Global economic growth during the fourth quarter of 2012 was somewhat weaker than expected. However, so far in 2013, the indicators of economic activity and expectations in some of the larger economies have been more positive and financial conditions have improved.

• International oil prices rose and are at levels above the average observed in 2012. If the price of oil stays at these levels, it could offset the low coffee and coal prices and place terms of trade in 2013 above the average for 2012.

• In Colombia, the economic indicators for the fourth quarter of 2012 suggest private consumption grew slightly less than during the second and third quarters of that year. The uncertainty surrounding the behavior of investment remains high, particularly with respect to investment in civil works and building construction. On the supply side, the leading industrial indicators again suggest a drop in production in this sector during December, while the indicators for commerce point to acceptable growth. This being the case, the technical team estimates economic growth in 2012 should be within a range of 3.3% to 3.9%.

• Economic growth during the first quarter of 2013 will be affected by fewer business days during that period, as well as the supply shocks to coal exports and the risk of less demand from Venezuela.

• In January, annual consumer inflation (2%) was lower than expected, predominantly due to less of an increase in the CPI for food and regulated items. The tax reform helped to reduce some of these prices, a development that has a temporary impact on the annual change in the CPI. Other factors, such as lower production costs and moderate wage adjustments, also explain part of this behavior.

• The averages for both core inflation and inflation expectations are below the long-term target (3%).

• The slowdown in inflation, which was more than expected, occurred in the context of a negative output gap, a situation that may keep inflation expectations at low levels for a longer period of time. It also reduces the likelihood that unanticipated increases generated by supply shocks may jeopardize compliance with the inflation target.

• Lending continued to decelerate in January, but at a slower pace. Nominal interest rates on the different types of loans fell, with the exception of those for consumer lending, which increased during the month. In real terms, all the rates were up, partly because of the reduction in actual inflation and inflation expectations.

In these circumstances, an assessment of the risk balance indicates the desirability of lowering the intervention interest rate to 3.75%. The monetary policy actions being taken are intended to place output near the economy’s productive capacity, without jeopardizing the inflation target and the country's macroeconomic stability.

The Board reiterates that Banco de la República has sufficient tools and resources to satisfy the economy’s regular liquidity needs in both local and foreign currency, as well as any needs that might arise in an environment of international financial turmoil.

The Board will continue its careful monitoring of performance and projections with respect to economic activity and inflation in Colombia, asset markets and the international situation. Finally, it restates that monetary policy will depend on new information as it becomes available.

Bogotá, February 22, 2013

Banco de la República Lowers the Benchmark Interest Rate by 25 Basis Points and Expands its Daily Reserve Purchase Program

At its meeting today, the Board of Directors of Banco de la República decided to reduce the benchmark interest rate by 25 basis points, thereby placing the base overnight rate for expansion auctions at 4%. This decision was taken in view of the following factors:

• On the international front, average economic growth in 2012 with respect to Colombia’s trading partners was consistent with expectations.  For 2013, the measures adopted by the European authorities and the improvement in financial conditions have reduced the likelihood of a sharp recession in the Euro Zone. In the United States, the latest information suggests its economy could grow at a somewhat slower pace than was estimated for 2012.  China’s growth remains at around 8%.  This being the case, the expectation for the current year is that external demand will remain weak and grow at a pace similar to the rate in 2012.
  
  
• The rising trend witnessed in terms of trade up to 2011 was interrupted in 2012, the year when terms of trade remained stable. Given the weakness of the global economy, terms of trade in 2013 could be somewhat less than the average observed in 2012.
  
  
• As to the fourth quarter of 2012, the new figures on consumer lending, retail trade and consumer confidence suggest household spending would grow  at a rate slightly less than the one observed in the third quarter. There is a great deal of uncertainty about how investment will behave, especially investment spent on civil works, construction and buildings. The figures for exports in dollars show more of a slowdown than for imports.
  
  
• On the supply side, the industrial production indicator posted an annual drop in November and expectations in the sector deteriorated yet again. Retail sales, both with and without vehicles, rose at a good pace.
  
  
• The technical team forecasts between 2.5% and 4.5% economic growth for 2013, with 4% being the most likely figure. The major uncertainty with respect to this forecast is rooted in the possible persistence of the negative shock witnesses in investment in civil works and buildings. Some of the factors that have slowed this type of spending are expected to be reversed, thereby bolstering domestic demand. The conditions that supported the momentum observed in consumption and in the investment in machinery and equipment are expected to continue during 2013. Among others, these include stable levels of employment and consumer confidence, and the accumulated reduction in policy interest rates. The latter is being passed through to interest rates on loans, coupled with lending that has slowed but continues to grow at a good pace. All of this is accompanied by an international context of broad liquidity and low interest rates.
  
  
• Annual consumer inflation in December (2.4%) declined more than anticipated by the market and by the Bank’s technical team. As occurred throughout the year, the slowdown in inflation was explained, yet again, by less of an increase in the CPI for regulated items and food. Average core inflation and inflation expectations declined again and are now below the long-term target (3%).

In short, the Colombian economy is growing below its potential, both observed and projected inflation are under the 3% target, and there are no signs of upward pressure on inflation in the near future.  Given these conditions, an assessment of the risk balance indicates the advisability of lowering the intervention interest rate to 4%. The monetary policy action that has been taken is designed to situate output in 2013 close to the economy’s productive capacity, without jeopardizing the inflation target or the country’s macroeconomic stability.

The Board of Directors also decided to continue to accumulate international reserves in an effort to maintain a proper balance in proportion to the country’s financial depth and its growing participation in the global economy. Accordingly, the Board extended the program for daily auctions to purchase foreign currency and Banco de la República will accumulate at least USD 3 billion between February and May of this year, through daily purchases of no less than US$ 30 million. This represents an increase from USD 500 million in average monthly purchases under the previous program to no less than USD 750 million under the current one.  The decision takes into account the recent trend toward peso appreciation in an environment characterized by an expansive monetary policy, weak export growth compared to the increase in imports, and an uncertain outlook for terms of trade.

The Board reiterated that Banco de la República has sufficient tools and resources to satisfy the economy’s regular liquidity needs with respect to both local and foreign currency, as well as any needs that could arise in an environment of international financial turmoil.

The Board will continue to carefully monitor performance and projections with respect to economic activity and inflation in Colombia, asset markets and the international situation. Finally, it reiterated that monetary policy will depend on new information as it becomes available.

Bogotá, January 28, 2013

Banco de la República Lowers its Intervention Interest rate by 25 Basis Points

At its meeting today, the Board of Directors of Banco de la República decided to reduce the benchmark interest rate by 25 basis points, thereby placing the base overnight rate for expansion auctions at 4.25%. This decision was taken in light of the following:

• Third-quarter GDP growth in 2012 (2.1%) was below the target range forecast Banco de la Repúplica’s technical team (between 3.3% and 4.8%). Internal demand slowed significantly, from 7.1% in the second quarter to 2.4% in the third. This is explained entirely by a sharp and unexpected contraction in investment, particularly investment in the civil works and buildings. In terms of civil works, there were substantial reductions in investment in mining and the construction of highways and other routes.  The drop in investment in buildings affected housing as well as non-residential constructions.

• In contrast, the increase in private and public consumption during the third quarter (4% and 4.8%, respectively) was similar to what was observed in the second quarter and slightly better than expected.  Exports, which rose by more than 11% in real terms during 2011, have slowed so far in 2012 and were up by 2.5% during the third quarter. This reflects, to a large extent, the impact of the global slowdown on Colombian foreign trade.  In addition, real import growth declined from 21.5% in 2011 to 8.8% during the third quarter of 2012, in keeping with the reduced momentum in internal demand.

• Recent figures on the global economy indicate no significant change in what was reported in the bulletin on the previous meeting of the Board of Directors. International uncertainty remains. Some international economic indicators have improved slightly, but foreign interest rates are expected to remain low for an extended period of time, given the weakness in a number of industrialized economies and the lack of inflationary pressures.

• The foregoing results and the new economic figures for the fourth quarter of 2012 suggest growth for the year as a whole could be less than 4%. Once again, the major uncertainty in this forecast originates with investment performance, mainly investment intended for civil works and buildings

• Some of the factors that slowed investment in 2012 are expected to reverse in 2013, thereby bolstering internal demand. Such is the case, for example, with several investment projects in the mining-energy sector, which have suffered delays this year.    Something similar is expected to happen with respect to the construction of highways and other routes. The conditions that support the momentum observed in consumption and investment in machinery and equipment should continue during 2013.   These include, among others, the stable levels of employment and consumer confidence and the reduction in policy interest rates witnessed during the second half of 2012. The latter are being passed through to the interest rates on lending. Finally, with respect to the external context, the expectation is for slightly more global economic growth than in 2012, relatively stable terms of trade, and abundant international liquidity.

•  In these conditions, economic growth during 2013 is expected to exceed the forecast for this year.

•  The results for inflation in November were less than expected, primarily because of the way prices for food and regulated items behaved. Inflation, the average of the core inflation indicators and most measurements of inflation expectations are below the 3% target.  Given the new information at hand, this situation is expected to continue for some time.

In short, the Colombian economy is growing at a rate below its potential. Both observed and forecast inflation are below the 3% target, and there are no signs of upward pressure on inflation in the future.  With these circumstances, an assessment of the risk balance points to the desirability of reducing the intervention interest rate to 4.25%. The action taken with respect to monetary policy is aimed at placing output in 2013 near the economy's productive capacity, without threatening the inflation target and the country's macroeconomic stability.

The Board reiterated that Banco de la República has the tools and resources to meet the liquidity needs the economy regularly has in terms of both local and foreign currency, as well as any needs that could arise in an environment of international financial turmoil.

The Board will continue its careful monitoring of performance and projections with respect to economic activity and inflation in Colombia, asset markets and the international situation. Finally, it reiterated that monetary policy will depend on whatever new information becomes available.

Bogotá, December 21, 2012

Banco de la Republica announces inflation target for 2013 and reduces the benchmark interest rate by 25 basis points

In its meeting today, the Board of Directors of Banco de la Republica ratified their commitment to keep the inflation target at 3% and confirmed that the monetary policy measures will continue to be directed towards holding inflation at that value. Low and stable inflation is the best contribution monetary policy can make to sustainable economic growth and the creation of jobs. The 3% inflation also applies in the legal area and the target range is 3% +/- 1 percentage point.

In addition, the Board decided to reduce the benchmark interest rate by 25 basis points.  Therefore, the base rate used in liquidity-expansion auctions is 4.5%. This decision was based on the following considerations:

The international uncertainty is still present. Some international economic indicators have improved a little. The weakness in a significant number of industrialized economies and the lack of inflationary pressure make it possible to expect that foreign interest rates will remain low for an extended period of time.

Colombian growth has slowed down based on rates that were seen to be above their trend levels in the second half of 2011.  After a 4.8% annual growth in the first half of 2012, the recent indicators of activity suggest that growth is moderating slightly more than what was expected. The weakness in the worldwide economy and the slowdown in domestic demand have been reflected in the lower growth in exports and the contraction in industrial output. The forecast range for GDP growth in 2012 is between 3.7% and 4.9% with 4.3% as the most likely result.

In 2013, moderate but sustained growth in the foreign demand for Colombian products, stable levels for international prices and expansive conditions of international liquidity are expected. The reduction in interest rates over the last few months, including the one done today, the stability in the job market and the favorable confidence levels households have will support a recovery of growth in consumption compared to what has taken place in the second half of 2012.  Investment will continue to be driven by public works, the lower interest rates and the expansion of the mining-energy projects.  Thus, a growth rate close to the growth of productive capacity is expected in 2013.

The growth of credit is still slowing down. The price indices for new and used housing are at historically high levels. 

Inflation, the average of indicators for core inflation and expectations are very close to the mid-point of the target range (3%). 

The greatest risks that could affect the country’s economic activity in 2013 are still a significant recession in Europe or the possibility of a strong fiscal cutback in the United States. 

Based on an evaluation of the current balance of risks, the Board of Directors considered it appropriate to reduce the benchmark interest rate to 4.5%.  Based on the current information, this is the interest rate level that is compatible with both growth close to the productive capacity and meeting the inflation target. 

The Board reiterates that Banco de la Republica has enough tools and resources to face the liquidity needs regularly required by the economy in both national and foreign currency as well as any that could appear in an environment of international financial turmoil.

The Board will continue to monitor the performance of and projections for economic activity and inflation in the country, the asset markets and the international situation carefully. Finally, the Board restates that the monetary policy will depend on new information available. 

Bogota, November 23, 2012

Banco de la Republica keeps the benchmark interest rate unchanged

In their session today, the Board of Directors of the Banco de la Republica decided to leave the benchmark interest rate unchanged. Consequently, the base rate for liquidity-expansion auctions will remain at 4.75%. The decision was made with the following in mind:

– The economic activity indicators in the third quarter of 2012 confirmed the weakness of the global economy. Europe continues to contract and the United States is growing at a moderate pace. The slowdown seen in some of the larger emerging economies seems to be stabilizing. In this context and without inflationary pressures, it is to be expected that the foreign interest rate will remain low for a prolonged period. Likewise, in spite of the slower worldwide growth, the international price of petroleum and other commodities remain high.

– The international financial conditions have improved, partly because of the policy actions of the main central banks around the world. Volatility has declined and the prices of some assets have risen. However, the uncertainty associated with the problems of public finances and of the banks in some advanced economies are still high.

– In Colombia, just as in other countries, the weakness of the global economy has been reflected in the slower growth of exports and industrial production. The terms of trade remain high and stimulate national income.

– In spite of the signs of a slowdown, expansion in the coming quarters will continue to be driven by domestic demand. A healthy financial system, household confidence, and a strong labor market will continue to support the growth of consumption. The prices of commodities, the confidence levels, the availability of foreign and domestic financing and foreign direct investment, in turn, will contribute to the performance of the investment.

– The growth of credit continues to slow down and the indices of prices for new and used housing are at historically high levels.

– Inflation, the average of the indicators of core inflation, and expectations are very close to the mid-point of the target range (3%).

– The greatest risk for the country’s economic activity is still a strong recession in Europe. It appears that the probability that this will occur has declined given the actions taken by European authorities and the reactions of the markets on that continent.

Based on the evaluation of the current balance of risk, the Board of Directors thought it appropriate to keep the benchmark interest rate at 4.75%. New information including not only information concerning developments in the events in advanced countries and their impact on confidence, global demand, and the international prices for commodities but also that coming from domestic performance will make it possible to take future monetary policy actions.

The Board reiterates that the Banco de la Republica has the tools and sufficient resources to meet the liquidity needs in national and foreign currency that the economy requires on a regular basis as well as those needs that might appear in an environment of international financial turbulence.

The Board will continue to monitor the trend and projections for economic activity and inflation in the country, the asset markets, and the international situation carefully. Finally, they also reiterate that monetary policy will depend on the new information that is available.

Bogota, October 26, 2012

The Board of Directors of Banco de la Republica (the Central Bank of Colombia) has appointed Mr. Jose Dario Uribe(*) as Governor for the period starting on 4th January 2013.

At its session today, the Board of Directors of Banco de la Republica (the Central Bank of Colombia) appointed Mr José Dario Uribe-Escobar(*) as Governor of Banco de la Republica for the four-year period beginning in January 4 2013.

Mr. Uribe has been acting as this institution’s Governor since 2005.  He is an EAFIT University Business Manager as well an Economist from Los Andes University with a Master Degree and a Ph Degree of the University of Illinois. 

Bogotá, September 28 2012

Banco de la Republica (the Central Bank of Colombia) keeps its intervention interest rate unaltered at 4.75%

At its meeting today, the Board of Directors of Banco de la Republica, the Central Bank of Colombia, decided to keep its intervention rate unaltered. In this manner, the base rate for expansion auctions will remain at 4.75%. The following factors were taken into account in the decision-making process:

• Economic activity indicators published last month confirm a slight weakening in global economy.  In Europe, economic conditions continued to slow down and, likely, the region GDP fell in the third quarter. Growth in the United States is keeping a moderate pace while, in Japan, the economy is also failing. In this context, and with no inflationary pressures, the central banks in Europe, the United States and Japan announced enhanced monetary stimuli for a more prolonged period. In a noticeable number of emerging economies, their common factor has been export and industrial production deceleration.   

• Although international prices for commodities fell down, they nevertheless continue to be high. Consequently, Colombian terms of trade are still elevated and propel national income.  However, according to the more recent (July) data available, the total value of Colombian exports fell due to external demand weakening and a decrease in oil prices.  

• In Colombia, GDP growth in the second quarter (4.9% in annual terms) exceeded the range estimated by the technical team (between 3.3% and 4.8%).  This underestimation was due to a growth higher than projected (annual 6.4%) in internal demand.  Figures of economic activity in the third quarter suggest that the annual GDP growth will be lower than in the second quarter.  For the full year 2012, economic growth is likely to be higher than the midpoint of the estimated range (between 3% and 5%).

• In August, credit growth continued to slow down, in this way diminishing financial imbalance risk. Real interest rates are standing at levels close to the average observed since 2000.

• Although both inflation and the average of base inflation measures showed a slight increase in August, they are nonetheless standing very close to the midpoint of the inflation rate (at 3.1%). One-year inflation expectations remained stable at 3.3%, while those resulting from the Colombian 2, 3 and 5-year treasury bonds – TES – did increase, but still remaining below 3% (the midpoint of the target range).

According to the current risk balance assessment, the Board of Directors deemed prudent to keep the intervention interest rate at 4.75%. This new information will allow for the establishment of further actions of both monetary policy concerning the development of events in the advanced countries and their impact on confidence, global demand, and international prices for basic goods and those from internal demand.

In addition, the Board has decided that, between October 1st and March 29th, it will buy at least US$3 billion using the daily auction mechanism of at least US$20 million.

The Board reiterates that Banco de la Republica has the tools and sufficient resources to meet liquidity needs in both local and foreign currency as usually required by the economy, as well as those likely to occur in an environment of international financial turmoil. 

The Board will continue to keep a close watch on the international situation, on inflation behavior and projections, on growth and the performance of the asset markets, and confirms that monetary policy will depend of the new information available.

Banco de la Republica (the Central Bank of Colombia) lowers by 25 basis points its intervention interest rate

At its meeting today, the Board of Directors of Banco de la Republica, the Central Bank of Colombia, lowered its intervention interest rate by 25 basis points. In this manner, the base rate for expansion auctions will be 4.75%. This decision was based on the following factors taken into account:

• Results for the second quarter confirm the weakening of world growth. The Eurozone GDP fell as compared with the level observed in the first quarter, and economic growth in the United States and some emerging countries in Asia was slightly weaker. International financial markets are still volatile, and confidence continues to be affected by risks originating in Europe. 

• The latest foreign trade and industry figures at world level do also suggest the increasing transmission of European problems into the rest of the economies. This heightens the likelihood of an even weaker world growth in the future.
  
  The international prices for some basic agricultural products have risen as a result of droughts in producing countries. Likewise, the oil price rose after having experienced a reduction in the second quarter of the year.

• In Colombia, the value of commodity exports of mining origin continued to slow down; its annual growth of 0.7% can be explained by lower international prices. In turn, agricultural exports as well as those of the other sectors, particularly in the industry, fell 21.4% and 3.8% respectively in annual terms. 

• Although industry and commerce figures in June were slightly better than expected, growth was low. In the same month, the Fedesarrollo industry survey reflected deterioration again in confidence and order volume, as well as an increase in stock. Consumer confidence rose slightly in July and is standing above the average observed in 2011.

• Credit growth is still slowing down, thus reducing the risk of financial imbalances.
  The recent moderation has been concentrated in household credit, which continues to grow at high rates.  Real interest rates are at levels close to the average observed since 2000, and the interbank interest rate is standing above the intervention interest rate.

• The observed and expected inflation in December 2012 fell at rates close to 3%. Core inflation measures remained relatively stable, and the average of the four indicators calculated by the Bank stood at 3%.

•  All term inflation expectations declined, while those deriving from the 2, 3, and 5-year Treasury Bonds – TES – stood around 2.4%.

According to the assessment of the current balance of risks, the Board of Directors deemed that reducing the intervention interest rate is appropriate. The new information will allow for introducing future monetary policy actions concerning both the development of events in the advanced countries and their impact on confidence, global demand and international prices of basic goods, as from internal dynamics.

In addition, in order to provide more the economy with more permanent liquidity, the Board has decided that, in the remainder of August and in September it will by US$700 million through the daily auction mechanism with minimum price of US$ 20 million.

The Board restates that Banco de la Republica has both the proper tools and sufficient resources to meet local and foreign currency liquidity needs regularly required by the economy as well as those likely to occur in an environment of international financial turmoil.

The Board will continue to keep close watch on the international situation as well as on the behavior and projections of inflation, growth, and the asset markets, while reiterating that the monetary policy will depend upon the new information available.

Banco de la Republica (the Central Bank of Colombia) lowers by 25 basis points its intervention interest rate

At its meeting today, the Board of Directors of Banco de la Republica, the Central Bank of Colombia, has decided to lower its intervention interest rate by 25 basis points. In this manner, the base rate for expansion auctions will be 5%. This decision was based on the following factors taken into account:

• Growth continues to weaken more than expected worldwide Information suggests a slower growth rate in he United States, while it keeps contracting in Europe. In China and other emerging economies, growth slowdown is higher than predicted, thus mirroring a weakening world demand and previous political actions.

• Excess global capacity and lower commodity prices (with the exception of some agricultural goods) have moderated inflationary pressures while permitting the presence of expansionary monetary policies in a significant number of countries. For instance, in the emerging economies, the Central Banks of Brazil, China and South Korea have recently lowered their interest rate in an attempt to counteract the effects of deceleration in demand.

• The weakening of economy worldwide is restricting Colombian economic growth through lower external demand and lower international prices for major export products. 

These factors are likely to prevail in the same direction in the next few months. Although consumption and investment will be the main source of GDP growth in 2012, these domestic demand components will grow less than in the previous year and are likely to reduce, even eliminate, the current production capacity pressures.  

• Generally, with the new information available, a GDP growth between 3% and 5% has been projected. This range width is due to uncertainty around the size of global deceleration and its impact on the Colombian economy, as well as on the recovery of civil works and the overcoming of some negative supply shocks currently affecting the industry and mining sectors. For 2013, a growth similar to 2012’ is projected.  As it should be expected, the level of uncertainty increases as the forecast horizon grows. 

• The annual growth of the commercial portfolio continues to slowdown, while consumption credit - though moderate - is still high, and the mortgage portfolio grows at a good pace along with a new-house price index that remains at historically high levels.
  

• In June, annual inflation was 3.2%, below the figure projected by the Bank’s technical team.  All core inflation measures dropped and their average stood close to 3.0%.  Inflation expectations did also go down: 3.1% is expected for December 2012 and about 3.3% for July 2013, while those deriving from the treasury ‘TES’ bonds at horizons between two and five years are at 2.5%.  

• According to the evaluation of the current balance of risk, all the members of the Board of Directors deemed it appropriate to reduce the intervention interest rate.  Some members had proposed an even higher reduction than the one eventually adopted. The new information will enable the Bank to establish new monetary policy actions concerning both the development of events in the advanced countries, their impact on confidence, global demand and international commodity prices, and internal dynamics.   

• The Board restates that Banco de la Republica has both the proper tools and sufficient resources to meet local and foreign currency liquidity needs regularly required by the economy as well as those likely to occur in an environment of international financial turmoil.

Banco de la Republica keeps the intervention interest rate unaltered at 5.25%

The Board of Directors of Banco de la Republica, the Central Bank of Colombia, in its session today has decided to keep the intervention interest rate unaltered at 5.25%. This decision was made upon having taken the following into account:    

• Global growth has declined in the second semester of this year.  In the United States, information available suggests a slower growth pace while, in Europe, several indicators show that economy in the eurozone is contracting. The problems confronted in this region have affected world’s economic perspectives through confidence, and the trade and capital flows. The emerging economies show a more moderate expansion rate that reflects in the weakening of exports and industrial production.

• Like in other emerging countries, the effects of a weakening global economy have been felt in Colombia through reduced demand and lower prices for the country’s exports. This has led to growth deceleration, particularly in tradable sectors other than mining. Both industrial production in March and April and agriculture GDP in the first quarter of the year have contracted.

• Civil works construction fell in the first quarter, a phenomenon not having been envisaged in the Bank’s projections. In contrast, the financial, commercial, and transport and communication sectors showed remarkable dynamism propelled by growth in domestic demand which, in turn, has been encouraged by favorable levels of confidence and finance.

• Generally, economic growth in Colombia during the first semester has been lower than expected. The GDP growth figure in the first quarter stood close to the lower limit of the target range predicted by the Bank’s technical team for that period.

• Annual growth in the commercial loan portfolio continues to slow down. Although household credits have been moderate, growth rates, particularly for consumer credit, remain high. The mortgage loan portfolio is growing at a good pace, along with a        new-house price index which increased again in March and continues to be at historically high levels.

• The annual inflation rate in May was 3.44%, similar to the April’s figure. The averages of base inflations, as well as the one to five-year mean inflation expectations, stand at a rate slightly higher than 3%.

• According to the evaluation of the current balance of risks, the Board ha decided to keep it intervention interest rate unaltered. The  new information will enable the Bank to establish new monetary policy actions for both that concerning the evolution of events taking place in the advanced countries and their impact on confidence, global demand, and international prices for basic goods, and that originating in internal dynamics.

• The Board reiterates that Banco de la Republica has both the tools and sufficient resources to meet local and foreign currency liquidity needs normally required by the economy, as well as those likely to occur in an environment of international financial turbulence.

• The Board will continue to carry on its careful monitoring of the international situation, inflation behavior and projections, as well as growth, and asset-market performance, while reiterating that the monetary policy will depend on the new information available.
  
  Bogota, June 29 2012

Banco de la República Hold the Intervention Interest Rate Steady

At its meeting today, the Board of Directors of Banco de la República (the Central Bank of Colombia) agreed to hold the intervention interest rate steady at 5.25%. This decision was taken in light of the following considerations.

. On the external front, GDP in the Euro zone did not fall during the first quarter of 2012. This better-than-expected outcome was due to German economic growth, which offset the GDP declines in the rest of the zone.  During the same period, Japan and to a lesser extent the United State posted higher growth rates than anticipated.  In the large emerging market economies, such as China, Brazil and India, there has been more of a slowdown than expected.

 . May saw a significant rise in the uncertainty as to whether or not Greece will remain in the Euro Zone.  Coupled with other financial and political events in Europe, this raised international risk premiums, having a negative impact on stock markets and weakening the currencies of the emerging countries, including the Colombian peso.

. The recent events in Europe increased the risk of a severe recession on that continent, amidst an environment where the financial system is fragile and the economies in question have little fiscal and monetary leeway to deal with recession. The rise in the likelihood of this scenario boosted the uncertainty surrounding the central forecasts for Colombian growth.

. The international price of oil fell below what was expected a month ago.  Even so, terms of trade remain high and are bolstering the growth in national income.

. Economic growth in Colombia during 2012 is expected to be somewhere between 4% and 6%. The momentum in private demand will continue to be the main source of that growth, both in terms of household consumption and investment.   The figures at hand throughout the year point to more moderate growth household consumption and investment, which is in line with the growth forecast for the year as a whole.

. The increase in the commercial loan portfolio slowed, due to less growth in loans in foreign currency. The increase in lending to households remains high, especially in the case of consumer loans.  However, the quality of the latter has deteriorated.

. Annual inflation in April (3.43%) was slightly less than estimated and similar to the rate posted the month before.  The averages for the core inflation measurements and inflation expectations rose slightly, although the risks to inflation are moderate.

. Based on an assessment of the balance of these risks, the Board of Directors decided to hold the intervention interest rate steady.  Any new monetary-policy action will depend on the information that emerges.

. The Board of Directors reiterated that Banco de la República has sufficient tools and resources at its disposal to deal with the economy’s regular liquidity needs in domestic and foreign currency and with those that might arise in an environment of international financial turbulence.

The Board of Directors will continue to keep a close watch on the international situation, inflation performance and forecasts, and the behavior of asset markets. It reiterated that monetary policy will hinge on whatever new information becomes available.

Bogotá, May 28, 2012

Banco de la República Holds the Intervention Interest Rate Steady

At a meeting today, the Board of Directors of Banco de la República (the Central Bank of Colombia) agreed to make no change in the intervention interest rate, keeping it at 5.25%. The following was taken into account with respect to this decision:

• On the external front, the forecasts for 2012 suggest slightly negative economic growth in Europe, while the United States could see a growth rate below its potential.  Growth in the emerging market economies is expected to be less, but at a pace near the long-term rate.  Therefore, the average growth rate for Colombia’s trading partners is expected to be less this year than in 2011.
• The international price of oil remained high, as did the prices of other commodities Colombia exports.   Consequently, terms of trade are at record highs and are fueling the increase in national revenue.   The performance of some tradable sectors may be affecting appreciation of the Colombian peso.
• In Colombia, economic growth during 2012 is expected to be somewhere between 4% and 6%.  The momentum in private demand will still be the primary source of that growth, in terms of both household consumption and investment.  The figures at hand throughout the year point to more moderate growth in household consumption and investment, which is consistent with the growth forecast for the year as a whole.
• The increase in the commercial loan portfolio slowed, given less momentum in loans in foreign currency.  The rise in lending to households remains high, especially consumer loans, which indicates households have raised their level of borrowing substantially. This has occurred in a context of real interest rates on ordinary and consumer loans (except credit card lending) that are below their historic averages.
• Annual inflation in March (3.40%) slowed faster than Bank’s technical team and the market expected.  The average for the core inflation measurements stayed at around 3%.  Inflation expectations declined once again and are expected to continue to converge towards the middle of the target range.
• There is still the risk of a severe recession in Europe with significant negative repercussions for economic activity in Colombia, but the likelihood of its occurrence seems to have declined.
• The risks to inflation stemming from expectations have become more moderate. Those that may come from the performance of consumer lending remain in place.
• Pursuant to the current assessment of the balance of these risks, the Board of Directors agreed to make no change in the intervention interest rate.  New action in terms of monetary policy will hinge on the new information that emerges.
  
• The Board of Directors also agreed to extend the program for daily purchase of dollars in minimum amounts of US$20 million, at least up until November 2 of this year.

The Board will continue to keep a close eye on the international situation, inflation performance and forecasts, and the behavior of asset markets.  It reiterated that monetary policy will depend on whatever new information becomes available.

Bogotá, April 30, 2012

Banco de la Republica keeps the intervention interest rate unaltered

The Board of Directors of Banco de la Republica, the Central Bank of Colombia, in its session today has decided to keep the intervention interest rate unaltered at 5.25%. This decision was made upon having taken the following into account:    

• In February, annual inflation (3.55%) remained stable with respect to the previous month and has continued to fall since October 2011. The average of base inflation measurements remained around 3%. The foregoing and the recent monetary policy actions helped reduce inflation expectations.  It is hoped that the latter will continue to converge towards the mid point of the target range.   
• Economic growth in the fourth quarter of 2011 (6.1%), like in the entire year (5.9%), ratify the vigorous expansion of the economy.  Internal demand dynamics, which had shown a quarter-to-quarter upward trend, underwent a deceleration by the end of the year and recorded a 7.9% rate, just as the one observed in early 2011. The raised rhythm of spending for several quarters now has led demand to fill the installed capacity in various economic sectors. 
• The recent growth deceleration seen in the manufacturing industry and some other data already known in the first quarter of 2012 suggest that growth in this period may be lower than in late 2011. The new information will help more certainly establish whether internal demand dynamics is coherent or not with the sustainable growth of the economy and the attainment of the inflation target.
• Credit growth, particularly consumers’, continues to be high; this indicates that household debt levels have risen significantly.
• Although nominal and real interest credit rates have indeed gone up in the past 12 months, they remain at lower levels than their estimated averages since 2000, with the exception of credit cards. 
• In the external context, forecasts for 2012 suggest negative growth in Europe, while in the United States a rate somehow lower than its potential could be expected.  The emerging countries might grow at a slower pace, but closer to the long-term rate.  For this reason, our commercial partners’ average growth in the current year is likely to be lower that that observed in 2011.
• The international oil price has continued to rise, and quotations for other basic products exported by Colombia remain at high levels. Consequently, exchange terms are historically high and foster national income growth.  On the other hand, the peso appreciation may have been affecting the behavior of some tradable sectors.
• The risk of intense recession in Europe with significant negative impacts on the Colombian economic activity remains, but the likelihood of its occurrence has fallen in the past few weeks.
• Expectation-based risks on inflation have become more moderate, while those that might arise from credit or demand behavior still exist.   

According to the present risk-balance assessment, the Board of Directors has decided to maintain the intervention interest rate unaltered. The new information will allow the Bank to establish new monetary policy actions to be followed.

The Board will continue to carry on its careful monitoring of the international situation, inflation behavior and projections, and the asset market performance, while reiterating that the monetary policy will depend on the new information available.


Bogotá, March 23, 2012

Banco de la República raises the intervention interest rate

At a meeting today, the Board of Directors of Banco de la República (The Central Bank of Colombia) decided to raise the intervention interest rate by 25 basis points. Accordingly, the base repo auction rate will be 5.25%. This decision was taken in light of the following.

•The new figures on global economic activity reflect a slowdown in external demand, as anticipated. The forecasts for 2012 point to negative economic growth in Europe and indicate the United States could post a rate slightly below that of its potential. The pace of economic activity in the emerging market economies is expected to be slower as well. Therefore, average growth for Colombia’s trading partners is likely to be less this year than in 2011.

•International oil prices continued to rise and prices for the other commodities Colombia exports remain high. Terms of trade are at historically elevated levels and are fueling growth in national income.

•The latest figures suggest the Colombian economy continued to exhibit strong momentum in the fourth quarter of 2011; they also point to the persistence of this performance during early 2012. Exports as well as imports of capital goods continued to grow at a brisk pace in December. During that same month, the industrial confidence index remained at high levels and retail sales expanded at a good pace. In January, the consumer confidence index was up for the third straight month and reached record highs.

•Growth in lending remains high, although the latest data suggest a bit of a slowdown. However, the pattern in consumer lending indicates households have significantly raised their level of borrowing. With the recent intervention interest rate hikes, market rates are expected to approach their average historic levels more quickly.

•Annual inflation was 3.54% in January, having fallen for the third month in a row, as anticipated by the Central Bank’s technical team. Contrary to what happened in previous months, the core inflation indicators also declined. Given the latest policy measures, inflation expectations are forecast to converge towards the middle of the target range.

•A disorderly adjustment in Europe is still the major risk in the central forecasts. If that risk were to materialize, the world economy could growth far less than expected, international commodity prices could plunge and global aversion to risk could intensify, all of which could have an adverse impact on the Colombian economy. Furthermore, political tensions in the Middle East may lead to higher oil prices. Although this initially would mean more revenue from Colombian exports, it may have a negative impact on world economic growth. The primary risk to inflation comes from excessive growth in demand or increases in costs, above and beyond those anticipated, with strong and lasting effects on expectations and the credibility of the country’s monetary policy. Over a longer time line, excessive growth in lending or in the price of certain assets can be a source of financial imbalances with negative consequences for the sustainability of output and employment.

According to this risk-balance assessment, the Board of Directors decided to raise Banco de la República’s intervention interest rate by 25 basis points. It also agreed to extend the program for daily purchases of dollars in minimum amounts of USD 20 million until at least August 4 of this year.

The Board of Directors will continue to carefully monitor the international situation and forecasts and performance with respect to inflation, economic growth, and the performance of asset markets. It reiterated that monetary will depend on whatever new information becomes available.

Bogotá, February 24, 2012

Banco de la Republica, the Central Bank of Colombia, increases the intervention interest rate

The Board of Directors of Banco de la Republica, the Central Bank of Colombia, has decided to increase de intervention interest rate by 25 base points.  Therefore, the base rate for expansion auctions will be 5.00%.  In the decision-making process, the following was taken into account:   

• In Europe, the public debt of some countries in the region added to doubts on the solvency of certain banks, continue to affect household and enterprise confidence.  Recession in Europe is likely to be worst than anticipated several months ago. On the other hand, the United States economy in 2012 is expected to grow at a positive rate, though somehow lower as compared with its usual potential.

• International prices of commodities remain at high levels and encourage producing countries’ national income.    

• In Colombia, as of the third quarter o 2011, the GDP grew on a 7.7% annual basis, this figure being historically high and above the expectations. Internal demand’s annual growth (9.4%) was explained by the sharp increase of both investment and household consumption.

• The most recent information suggests that, in the fourth quarter, Colombian economy had continued to exhibit a strong dynamism. In the external balance, both exports and imports kept on growing at high rates in November.  All this added, the economic growth projected by the technical equipment for 2011 is higher than 5.5%.
  For 2012, the forecast interval remained between 4% and 5%.

• Bank credit continued to show high increase rates. Consumption credit behavior suggests that households are significantly enhancing their degree of leverage.  New and used housing indexes remain at historically high levels.

• The average of base inflation measures went up again; most of them exceed 3%.
  Inflation expectations were higher.

• A disorderly adjustment in Europe continues to be the worst risk in core predictions for growth. Should this risk materialize, the world economy would grow significantly less than expected, international commodity prices would likely plunge, and global risk-aversion might be exacerbated. As a result, the Colombian economy may be adversely affected. Moreover, the main risk on inflation comes from excessive demand expansions or higher-than-expected cost increases, with strong and lasting effects on monetary policy expectations and credibility. In a longer time horizon, an excessive credit growth and persistently low real interest rates could become the source of financial unbalances with negative consequences on economic growth sustainability.

According to the present risk-balance assessment, the Board of Directors has decided to increase the Banco de la Republica’s intervention interest rate by 25 base points.   

The Board will continue to carry on its careful monitoring of the international situation along with inflation behavior and projections and asset market’s growth and performance, while reiterating that the monetary policy will depend on the new information available.

Bogota, January 30 2012

Banco de la Republica, the Central Bank of Colombia, is keeping unaltered the intervention interest rate

The Board of Directors of Banco de la Republica, the Central Bank of Colombia, decided today to maintain its intervention interest rate unaltered at 4.75%. This decision was made in taking the following into account:

• International financial markets continue to show high volatility levels as a consequence of their difficulties relating to sovereign debt in Europe. On the other hand, United States economy is expanding at a moderate rate and it is expected to continue behaving in the same way for a long period.

• The Eurozone is likely to contract in the last quarter of 2011 and the first half of 2012, affecting in a negative manner other world regions. There is great uncertainty with respect to the magnitude of the Eurozone contraction and its effects worldwide.

• International commodity prices remain at high levels, thus fostering the national income of the producing countries.

• In Colombia, the new economic activity information, particularly with respect to civil works, suggests that GDP growth in the third quarter will exceed 6%. The new data do not contribute to changing the 2011 and 2012 growth predictions published in the last Inflation Report.

• Bank credit is growing at a high rate and seems to be accelerating. Consumer credit behavior suggests that households are significantly enhancing their degree of leverage. New and used housing price indexes are keeping the same maximum records.

• Between January and November, the GDP accumulated variation was 3.29%. With this figure, the likelihood of inflation standing below 4% by the end of the year is very high. Inflation expectations have shown a slight reduction after the intervention rate increase decided at the Board’s meeting in November. Base inflation measures remain upward, and most of them exceed 3%.

The highest risk in core growth predictions would be a disorderly adjustment in Europe. Should this risk materialize, the world economy would grow significantly less than expected; international prices of basic goods would fall and global risk aversion might worsen, all of which would seriously affect Colombian economy. On the other hand, the main risk with respect to inflation comes from excessive demand expansions or cost increases higher than expected, with intense and lasting effects on the monetary policy expectations and credibility. In a longer time horizon, excessive credit growth and the persistence of low interest rates might be the source of financial unbalances with negative effects on the sustainability of economic growth.

According to the present risk balance, the Board of Directors has decided to keep the Bank’s intervention interest rates unaltered. Currently, this balance is very sensitive to the new information obtained regarding both world and local economies.

The Board will continue to carry on its careful monitoring of the international situation along with inflation behavior and projections, growth, and the behavior of asset markets, while reiterating again that its monetary policy will depend on the new information available.

Bogotá, December 16 2011

Banco de la República, the Central Bank of Colombia, announces 2012 inflation target and increases the intervention interest rate in 25 basis points.

In their meeting today, the Board of Directors of Banco de la Republica, the Central Bank of Colombia, defined the 2012 inflation target in 3%+/-1pp. The Board believes that the conditions or the Colombian economy let foresee that, hereinafter, inflation will remain in this range corresponding to the long-term rate. The best contribution of the monetary policy to the sustained growth of both economy and employment is at a low and stable inflation level.

• In Europe, agreements and measures aimed at solving public debt issues and the financial system have not shown the impact expected so far. It is to be assumed that all these efforts will go on. The core forecast scenario indicates that the European economic activity would continue to weaken, but without a disorderly evolution. On its side, market consensus indicates that the United States economy should expand at a moderate rate for a long period.

• The emerging economies are growing at rates getting close to their long-term trends, although some of the largest of Asia and Latin America have shown some moderation in their growth. This reflects in part the effect of macroeconomic policies aimed at controlling inflationary pressures.

• The international prices of commodities remain at high levels and serve to encourage the national income of the producing countries.

• In Colombia, the new information available continues to reflect a dynamic domestic demand, although certain indicators show some moderations starting at high levels. Until September, the effect of the weakest external context on total exports has not been significant, mainly due to the high international prices of mining-energy products. The new data have not changed the 2011-2012 growth predictions published in the last Inflation Report. The unemployment rate is still falling to one-digit levels.

• Bank credit is still growing at a high annual rate. Households’ consumption is the most dynamic portfolio, since they seem to be increasing their degree of leverage in a significant way. New and used housing price indexes are at their maximum records

• Recent inflation data have exceeded those expected by the Bank’s technical team, and led to an upward revision of the short-term inflation predictions. Both base inflation measures and inflation expectations have continued to go up, but nonetheless remaining within the target range (3%+/- 1pp)

Taking into account the above-described core forecast, as well as the financial unbalances risks, the Board deemed prudent to increase by 25 bp the intervention interest rate, and it believes that this move serves to attain a monetary stance that helps maximize the growth and coherent use of the product with the attainment of future inflation goals. This decision incorporates the opportunity of detecting in time a substantial change in the external conditions of the economy and reacting to it accordingly, as fast as possible.

The highest risk in core growth predictions would be a disorderly adjustment in Europe.
Should this risk materialize, the world economy would grow significantly less than expected and Colombian economy would be adversely affected. In this event, that has a high probability of being timely detected, the monetary stance might be adjusted rather fast.

Moreover, the main risk on inflation comes from excessive expansions in demand, or from increases in costs exceeding those projected with strong and perdurable effects on the expectations and credibility of monetary policy.

The Board will continue to carry on its careful monitoring of the international situation along with the behavior and projections of inflation, growth, and the behavior of asset markets, while reiterating that monetary policy will depend on the new information available.

Bogota, November 25 2011

Banco de la República, the Central Bank of Colombia, maintains the intervention interest rate unaltered.

The Board of Directors of Banco de la Republica, in their meeting held today, decided to keep unaltered the intervention interest rate at 4.5%. This decision was made after due consideration of the following:

• In Europe, measures aimed at solving the public debt issue that has been weakening the Old Continent’s economic activity were announced.  The latest information published about United States’ growth for the third quarter was better than expected. However,  it still is early to determine if the agents’ confidence is being restored and if deterioration in economic activity may soon come to an end.

• Some of the largest Asian and Latin American economies are undergoing growth decelerations. International prizes for basic products remain at high levels and serve to encourage the national income of the producing countries.

• In Colombia, the new information available continues to reflect a very dynamic domestic demand, propelled by both private consumption and investment. If confidence is regained and international prizes for the main export products remain at high levels, it can be expected that the strong dynamism of demand will persist over the next quarters and may generate capacity pressures.

• Annual growth in bank credit was stabilized at a high rate. The most dynamic portfolio is consumption, with increases almost threefold the nominal GDP growth estimated for 2011.  New and used housing price indexes reached their maximum records in these series. The strong dynamism of these financial indicators, usually identified with excess demand and unbalance risks, may be explained in part by real interest rates still remaining at low levels.

• Short-term forecasts indicate that inflation will be above the middle point of the target range by the end of 2011.  These predictions reflect the temporary increase in food prices. Basic inflation measures and inflation expectations have improved again, though remaining within the inflation target range.

Taking into account the present global financial and economic risks and their potential effect on the Colombian economy, the Board deemed prudent to keep the intervention interest rate unaltered. However, if international confidence tends to recover and real domestic indicators continue to show their current dynamism while no meaningful contagion of the external situation is observed, the economy will likely require less monetary encouragement, this in order to maximize sustained production and employment growth.

The Board will continue to carefully monitor the international situation along with the behavior and projections of inflation, growth, and the performance of asset markets, while insisting that the monetary policy will depend on the new information available.

Finally, the Board has decided to habilitate the exchange intervention mechanism of volatility options calculated as based on the 20-order moving average of the so-called Market Representative Rate  - TRM  (+/-4% deviation), and an amount of US$200 million. This will replace the intervention mechanism of auctions at the spot market that was authorized at the Board of Directors’ Meeting held in September.

Bogota, October 28, 2011

Banco de la República, the Central Bank of Colombia, maintains the intervention interest rate unaltered.

The Board of Directors of Banco de la Republica, in their meeting held today, decided to keep unchanged the intervention interest rate at 4.5%. This decision was made after due consideration of the following:  

• The international context has deteriorated in the weeks subsequent to the past meeting of the Board. Fears regarding the sovereign debt have been growing, and growth predictions in the United States and Europe in 2011 and 20012 have been revised downward.  

• In certain Asian and Latin American economies, the new information points out to some moderation in growth. Although International prizes for basic products have gone down, they still remain at high levels.

• In Colombia, data for the first semester showed economic activity expanding at a good (5%) rate, similar to that previously projected. 
  Growth has been propelled by the strong dynamism of internal demand, particularly from the private sector with an annual rate of 11.7% in the second quarter. For the third quarter, the new information currently available suggests that growth may be higher than recorded in the first semester. Thus, the probability of the growth-prediction range (between 4.5% - 6.5%) for 2011 is still high.

• The annual growth in bank credit became stabilized at a high rate in an environment of real interest rates on loans that, in spite of their increases, are still below their historical averages. Consumption remains being the most dynamic portfolio, with increases almost threefold the nominal GDP growth estimated for 2011.

The new housing price index continued to increase and reached in July the maximum record of the series, as calculated since 1997.

Inflation expectations at different terms, as well as inflation projects for the end of 2011 and 2012, have shown no major changes and remain within the target range. 

In this context, the risk balance was not modified substantially vis-à-vis the previous month.  For this reason, the Board deemed appropriate to keep the pause in the increments in the intervention interest rate. Likewise, it believes that it maintains the current rate level keeps it in a good position to answer to the new information regarding global and national economy.

The Board will continue to carefully monitor the international situation along with the behavior and projections of inflation, growth, and the performance of asset markets, while insisting that the monetary policy will depend on the new information available.

Finally, considering the recent behavior of the exchange market as well as greater uncertainty in the international economy, the Board did not renew the program for the daily purchase of international reserves. In turn, considering the extreme volatility seen in the financial markets, Banco de la Republica will call for auctions at the spot market for an amount of US$200 million any time the so-called Market Representative Rate (“TRM”) shows 2% or more (downward or upward) deviations from its 10-order moving average. 

Bogota, September 30, 2011

Banco de la República will leave the benchmark interest rate unaltered

In their session today, the Board of Directors of the Banco de la Republica decided to keep the benchmark interest rate unaltered at 4.5%.  The decision was made with the following in mind:

• In the foreign context, the data for the second quarter point to a global growth that was smaller than what had been expected earlier.  In Asia and Latin America, regions that are very dynamic, growth has slowed down slightly due to supply factors or policy actions directed towards preventing their economies from overheating.  In contrast, in a large number of industrialized economies, including the United States, the weakening has been general.
• In addition, the sovereign debt problems in Europe and the debate about the debt ceiling in the United States have sharply increased the uncertainty and volatility in the international financial markets.  Consequently, the risk that worldwide economy will see lower growth has risen.
• Annual inflation for July rose for the third consecutive month (3.42%) especially as a result of the trend for food prices.  The average for the measurements of core inflation, in turn, rose again and passed the midpoint of the target range (3% +/- 1 percentage point).
• Inflation expectations for different periods of time and inflation projections for the end of 2011 and 2012 are within the target range.
• The available economic activity indicators confirm that the Colombian economy is maintaining a good rate of growth mainly driven by the strength of household consumption.  The consumer and industry confidence indicators are still at high levels and the growth of loans to families and businesses continues to increase in an environment of real interest rates that are lower than their historical averages.  The forecasts of GDP growth that were published in the last Inflation Report remain unchanged. 

Considering all of this, the Board decided it would be prudent to suspend the increases in the interest rates especially with the high uncertainty in the international financial markets and their potential negative effect on the growth of the global economy in general and the Colombian economy in particular. 

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

Bogotá, August 19, 2011

Banco de la Republica raised the benchmark interest rate 25 basis points

In In their session today, the Board of Directors of the Banco de la Republica decided to raise the benchmark interest rate 25 basis points. As a result, the base rate for liquidity-expansion auctions will be 4.5%. The decision was made based on the following:

- In June, annual consumer inflation rose for the second month in a row and was at 3.23%. Since March, the average for the core inflation measurements has shown a slight upward trend and, in June, it hit a level that was close to the mid-point of the target range (3% +/- 1 percentage point). The inflation expectations for several horizons are also within that range.

- The global economy is still expanding but at a slower rate than was seen before. The growth of the advanced economies that have high levels of debt is showing weakness. In contrast, the emerging economies’ growth, especially the Asian ones, remains very strong. As a consequence, international prices for commodities are staying high. The terms of trade for commodity producing countries, like Colombia, are at historically high levels and contribute to the growth of their national revenue.

- In Colombia, the growth of the GDP in the first quarter (5.1%) turned out to be higher than what had been estimated by the technical team and the market average. Private demand was the strongest, especially due to the performance of household consumption and investment other than public works projects. In addition, the figures for all consumption in 2010 were revised upward.

- The recent information related to economic activity, which includes both supply and demand as well as consumer and industry expectations, indicate that the growth of the GDP in the second quarter could be similar to what was registered at the beginning of the year. For the second half of the year, the technical team expects economic activity to surge and, therefore, raised their predicted growth range to an interval of 4.5% to 6.5%.

- The upswing in the growth of credit is continuing. All of its components, both those directed towards businesses and those towards households are showing real rates of growth that are significantly higher than the rise in the GDP. This is occurring in a context in which a large part of the real interest rates are at historically low levels.

- As of March, the prices of used housing continued to rise and began to approach the maximum level which was seen in 1995. The indicator for new housing prices also rose in the first quarter.

The increase in the benchmark rate aims to keep inflation within the target range for this year and the coming one and will contribute to preventing future financial imbalances that would undermine the sustained growth of the economy.

The Board will continue to carefully monitor the international situation, especially the risks associated with managing the debt problems in a large number of advanced economies, as well as the trend and projections for inflation, growth, and the performance of the asset markets. They also reiterate that monetary policy will depend on the new information that is available .

Bogotá, July 29, 2011

Banco de la Republica raised the benchmark interest rate 25 basis points

In their session today, the Board of Directors of the Banco de la Republica decided to raise the benchmark interest rate 25 basis points. As a result, the base rate for liquidity-expansion auctions will be 4.25%. The decision was made based on the following:

- In May annual inflation rose slightly and was at 3.02%. This is primarily explained by the increase in the prices for food which had had a larger than expected decline in April. The average for the core inflation indicators remained stable and inflation projections for the end of this year and the coming one are staying around the mid-point of the target range (3% +/- 1 percentage point).

- The economic activity indicators for a large number of the developed economies like the public debt crisis in some European countries suggest that the recovery in those countries could be slower than what had been estimated before. In contrast, the strength of the demand in emerging countries which are commodity consumers is continuing and their international prices are staying at high levels. Colombia’s terms of trade are still at historically high levels.

- Among the different real indicators available after the above mentioned Board of Director’s meeting, the sharp fall in the investment in public works projects that occurred in the first quarter stands out. This decline was not expected and is probably temporary in character.

- For the second quarter of 2011, the indicators for household consumption show buoyancy. The same thing is true of the indicators for commerce and industry. Nevertheless, both the consumer confidence ones and the indicators of industrial and merchant expectations have dropped.

- The growth of credit continued rising. All of the components including not only the one for companies but also that for households showed real rates of growth that were significantly higher than the increase in the GDP. This situation has occurred in a context in which many of the real interest rates are at historically low levels.

The increase in the benchmark rate is intended to keep inflation within the target range for this year and the coming one and will contribute to preventing future financial imbalances.

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

Bogotá, June 17, 2011

The Banco de la Republica raised the benchmark interest rate by 25 basis points

In their session today, the Board of Directors of the Banco de la Republica decided to raise the benchmark interest rate 25 basis points.  Consequently, the base rate for the liquidity-expansion auctions will be 4.0%.  The decision was made with the following in mind:

- Annual consumer inflation fell in April and settled at 2.84%.  The drop was more pronounced than what the market had foreseen and is mainly explained by the performance of food prices.  This last phenomenon is one that could reverse itself in May.  The probability that inflation will end up close to the midpoint of the target range at the end of the year is high.

- The average for the core inflation measurements is staying below 3% and inflation expectations for one year and 5-years that came out of the surveys or from the public debt paper are within the target range for inflation.

- The different real indicators that are available point to economic activity maintaining its strength.  This positive performance is supported by a significant expansion of domestic demand in both consumption and investment as well as by the healthy performance of sales abroad.  Colombia’s terms of trade remain at historically high levels and continue to have a positive effect on national revenue.
- The ranges for the economic growth outlook for the first quarter and all of 2011 were not changed. The new information suggests that between January and March, the expansion rate for economic activity could be in the upper part of the projected range (3.9% - 5.5%).  Thus, the probability that the output gap will close in the second half of 2011 rose.

- Credit continues climbing and the interest rates for new consumer loans (excluding credit cards), for commercial and housing loans have adjusted and are rising at a slower pace than the accumulated increase in the policy rate.

All of the above suggests that the move towards a less expansionary monetary policy should continue.  The level of the Banco de la Republica’s benchmark interest rate is still supporting the growth of output and employment.

The rises in the benchmark rate are aimed at keeping inflation within the target range for this year and the coming one and contribute to avoiding future financial imbalances.  The Board will continue to monitor the international situation, the trend and projections for inflation, growth, and the performance of the asset markets carefully.  They also reiterate that monetary policy will depend on the new information that is available.

Finally, the Board decided to extend its program for purchasing international reserves.  To do so, daily purchases of at least US$20 million will be made until at least September 30, 2011.

Bogotá, Colombia
May 30, 2011

Banco de la Republica raises the benchmark interest rate 25 basis points

The Board of Directors of the Banco de la Republica decided to raise the benchmark interest rate 25 basis points in their session today.  Consequently, the base rate for the liquidity-expansion auctions will be 3.75%.  The decision was made with the following in mind:

-In March, annual inflation was 3.19%, a figure that is similar to what was seen a month earlier.  The average for the core inflation indicators, in turn, remained stable and stayed below the midpoint of the target range (3% +/- 1 percentage point).

-The different measurements of inflation expectations for a year from now are within the inflation target range.  The long term ones (five and ten years), measured by means of public debt papers, declined but continue to stay above the upper limit of the target range.  The inflation projections done by the technical team at the Bank show an inflation that is close to the midpoint of the target range at the end of both 2011 and 2012.

-World economic growth, mainly driven by the Asian economies, is still expanding.  International prices for commodities including those for petroleum and food have risen in recent months as a result of the strength of demand in emerging economies and negative supply shocks.  This has been reflected in rises in the measurements of consumer prices in many countries. Also, some of the central banks in Latin America and Asia as well as the European Central Bank have been raising their interest rates.

-In Colombia, the 4.3% growth of the GDP in 2010 was higher than expected.  The information from the first quarter of the year suggests that this economic performance is still going on.  Terms of trade continue to improve and are at historically high levels.  This contributes to the growth of national revenue.  Consumer expectations have risen and investment in machinery and equipment is still strong.  It is also believed that the same thing is happening in public works projects.

-The technical team raised the range of the growth outlook for 2011 by 50 bp to an interval of between 4% and 6%.  The lower end of this range takes into account the negative effect that the worsening of rainy season weather could have on economic activity.  However, the probability that the level of output may be close to its potential rose. 

- The various indicators for housing prices are still rising and are now at levels that are near the maximum levels registered in history.

- Likewise, all of the credit components are still growing at a significant pace along with some real interest rates for loans low income loans.  That being the case, household debt has also climbed.

All of the above suggests that the adjustment to a less expansionary monetary policy should go forward.  The new level for the Banco de la Republica’s benchmark interest rate continues to support the short term growth of output and employment.

The increases in the benchmark rate will serve to keep inflation within the target range for this year and the next as well as help avoid future financial imbalances.  Also, the steps taken by the monetary policy in advance together with an austere fiscal position will lower the level to which the benchmark interest rate will have to rise in comparison to the levels seen in previous economic cycles.

Bogotá, Colombia
April 29, 2011

Banco de la República Increases the Intervention Interest Rate by 25 Basis Points

In a meeting today, Banco de la República’s Board of Directors decided to raise the intervention interest rate by 25 basis points.  As a result, the repo auction base rate will be 3.5%.  This decision was taken in light of the following factors.

· In February, annual inflation (3.17%) declined after five months of continuous hikes. The drop, which surpassed what the technical team had expected, was concentrated in the variation in prices for perishable foods and regulated items.  For the third month in a row, the various core inflation indicators exhibited relative stability and stayed near or below the mid-point of the target range
 (3% +/- 1 percentage point).

· The various measurements of inflation expectations at one year are within the target range for inflation. The longer term expectations (five and 10 years), measured by government bonds, declined but are above the ceiling of the target range.  Inflation forecasts for the end of 2011 and 2012 are still near the mid-point of that range.

· Up to now, global economic growth has exceeded expectations. International prices for oil, food and other commodities are at historically high levels and have led to increased prices for consumers in many countries. The central banks in some Latin American countries and in other parts of the world have raised their interest rates. However, the prospects for the global economy are uncertain. Added to the government debt problems in some European countries and to global inflationary pressures associated with the behavior of commodity prices is the uncertainty about the economic consequences of the earthquake in Japan.

· Economic activity in Colombia continues to gain strength. GDP growth during the fourth quarter of 2010 may be more than was expected previously. High prices for the country’s leading export products and more price stability with respect to imported goods have kept terms of trade high and even increased them in some cases.  Consumer confidence, which had been declining after an all-time high in August 2010, has increased again and the job market shows signs of improving to the extent that job creation is concentrated in salaried and formal employment.  In general, internal demand is growing at a good pace and the reasons to expect the economy to reach levels near its potential in the second half of the year are gaining force.

· Interest rates are at historically low levels in nominal and real terms.  Nominal interest rates on deposits and loans in the financial system showed stability during the past month. Lending continues to increase at high rates and home price indicators remain on an upward trend.   Generally speaking, monetary and financial conditions still support the increase in spending and production.

Taking all these factors into account and considering the time it takes monetary- policy to affect aggregate spending and inflation, the Board feels it is appropriate and prudent to continue to reduce the monetary stimulus in a gradual way.  The level of Banco de la República’s intervention interest rate continues to support the short-term growth in output and employment.  The intervention rate hikes in February and March will help to make the growth in output and employment more sustainable, to keep inflation within the target range this year and the next, and to preserve the stability of the financial system.  Furthermore, these expected consequences of monetary policy should reduce the level to which the intervention interest rate should increase in relation to the levels observed in previous economic cycles.

The Board will continue to monitor the international situation carefully, along with inflation forecasts and behavior, growth in output and employment, and the asset markets. It reiterated that monetary policy will depend on whatever new information becomes available.

Finally, the Board of Directors highlighted the principal elements that were taken into account by Standard & Poor´s to improve Colombia’s risk rating to investment grade.  Specifically, there is the soundness demonstrated by the Colombian economy in the face of the international crisis and the favorable prospects for mid-term growth, which will help to contain the public debt burden and will allow more room for counter-cyclical monetary and fiscal policies. Investment grade is a major step forward and will offer the country important opportunities for development.

Bogotá, Colombia
March 18, 2011

Banco de la República Raises the Intervention Interest Rate by 25 Basis Points

At a meeting today, Banco de la República’s Board of Directors agreed to an increase of 25 basis points in the intervention interest. Accordingly, the repo auction base rate will be 3.25%.

The intervention rate was reduced sharply and quickly at the end of 2008 and throughout 2009, given the economic slowdown anticipated due to the effects of the global economic crisis. In April 2010, the Board felt there was room for a further reduction of 50 basis points without jeopardizing the inflation targets. This placed the intervention interest rate at a historically low level in both nominal and real terms. However, the reasons for keeping this rate so low are no longer applicable. With the good momentum in internal demand and lending, near tendency growth expected for 2011, an inflation forecast close to the middle of the long-term target range, and above-target inflation expectations at more than one year, the Board felt it was prudent to begin to reduce the monetary stimulus in a gradual way. At 3.25%, the intervention rate continues to support the increase in output and employment, and contributes to its sustainability, while keeping inflation within the long-term target range.

The historically low nominal and real interest rates have been accompanied lately by an important upsurge in the growth in lending. Housing prices have been on the rise for some time. The need to protect ourselves against the risk of future financial imbalances that might adversely affect output growth and inflation suggest the intervention interest rate should not be kept extremely low for too long a period of time. In addition, the peso exchange rate against the dollar has been stable in recent weeks.

More specifically:

-Annual consumer inflation was 3.40% in January, which is similar to what the market expected and 23 basis points more than in December. As was observed in the two previous months, most of the pressure came from prices for food and regulated items, especially fuel.

- The core inflation indicators remained stable, and their average is still within the lower half of the target range. The inflation forecasts made by the Bank’s technical team for the end of 2011 and 2012 show inflation fluctuating at around the middle of the target range. (3% +/- one percentage point).

- Inflation expectations have increased during the last three months. This continued to be the case in February, even though the outcome for inflation the month before was in line what the market expected. Although inflation expectations at one year were in the upper half of the target range, those at two to 10 years, measured with government bonds, completed two straight months above the ceiling of that range.

- As for the external context, recent data suggest close to 5% growth in the global economy during 2010. Moreover, the forecasts for global growth in 2011 and 2012 have been revised upwards at rates that still exceed average long-term growth. Growth in most of the emerging economies is high and, in some of them, the central banks have raised interest rates to prevent inflation from getting out of hand.

- The risks in the global economy cannot be ignored. Specifically, there is the continuing uncertainty sparked by the fiscal situation in several industrialized countries and, in recent weeks, the sharp rise in international oil prices due to political instability in the Middle East. Moreover, weather factors and the considerable momentum in the emerging economies have added to inflationary pressures in those countries, particularly due to the recent increase in commodity prices.

- The economic recovery in Colombia continues on a path similar to what was forecast by the technical team. Internal demand is exhibiting a great deal of momentum associated with household consumption as well as investment in machinery and equipment. Public spending is expected to make more of a contribution in 2011 than in 2010. This is consistent with what is observed during periods before local administrations are about to leave office and with the programs instituted to repair the damage caused by the wave of winter weather.

- In general, Banco de la República’s technical team expects the economy to grow by about 4.5% this year, as more moderate growth during the second half of 2010, partly because of supply factors, will result in approximately 4% growth for that year. With some surplus capacity in the first six months of 2011, the Bank’s technical team still expects the economy to return to near- productive- capacity levels during the second half of 2011.

Finally, the Board of Directors decided to extend its foreign currency purchase program. To do so, it will purchase a minimum of US20 daily up until at least June 17, 2011.

The Board of Directors will continue to monitor the international situation closely, along with inflation forecasts and behavior, growth, and asset market performance. It reiterated that monetary policy will depend on whatever new information becomes available.

Bogotá, Colombia
February 25, 2011 (12:43 p.m.)

Banco de la República holds its intervention interest rate steady

At a meeting today, the Board of Directors of Banco de la República decided to leave the intervention interest rate unchanged.  As a result, the repo auction base rate will remain at 3%.  This decision was taken in light of the following factors.

• Annual consumer inflation in 2010 was 3.17%, which is near the middle of the long-term target range set by the Board of Directors (3% +/- one percentage point).
• Inflation in December was higher than anticipated by the market and by Banco de la República’s technical team. The larger than expected variation in prices occurred in food and regulated items.  The core inflation indicators also rose, but not as much, and are still below the mid-point of the target range.
• The various measurements of one-year inflation expectations increased and were in the upper half of the target range for inflation.  The longer term expectations (five and 10 years), derived from government bonds, showed rates above the ceiling the range. However, it is important to note the recent rise in inflation is due largely to a temporary shock affecting food prices.
• As for external demand, the economies of our major trading partners are growing slightly more than was expected, although there is still a great deal of uncertainty about how some of them will perform in the future.  At the same time, the Asian and Latin American countries are showing strong growth and price pressures. Some of their central banks have hinted at changes in the stance of their monetary policy.  International commodity prices are at historically high levels.
• Growth in the Colombian economy during the second half of 2010 was less than predicted several months ago.  Basically, this is explained by the behavior of investment in civil works and the effects of La Niña weather on agricultural output, mining production and transport.  In contrast, household consumption and borrowing increased at high rates, as did corporate borrowing and investment in machinery and equipment.  The latter is partly the result of historically low nominal and real interest rates, consistent with a weaker global and national economy than what we are seeing and is now being forecast.
• Factors such as the momentum in household consumption, high terms of trade, low interest rates and mounting credit will bolster economic growth in 2011. If the economy remains on an upward path, as anticipated, or inflation expectations show signs of deviating from the targets, conditions will be right for gradually withdrawing monetary stimulus in an effort to strengthen the sustained growth in production and employment.

The Board of Directors will continue to keep a close eye on the international situation, inflation forecasts and behavior, growth and the performance of asset markets. It reiterated that monetary policy will depend on whatever new information becomes available.

Bogota, January 31, 2011

Banco de la Republica Keeps the Benchmark Interest Rate Unchanged

In their session today, the Board of Directors of the Banco de la Republica decided to keep the benchmark interest rate unchanged.  As a result, the base rate for the liquidity-expansion auctions will remain at 3%.  The decision was made with the following in mind:

In November, annual inflation was at 2.59%, a figure that is higher than what was seen a month ago and better than what the technical team at the Banco de la Republica and the market expected.  This upswing in inflation, which is primarily due to the rise in food prices as a result of the climate, will be transitory in character.

The indicators for core inflation (that which excludes the prices for the most volatile products such as food) rose slightly and remain close to or below the mid-point of the target range.  Inflation expectations showed a similar trend.

The Colombian economy continues to be stimulated by the strength of domestic demand and favorable terms of trade.  The high confidence levels, a recovering labor market, the strength of credit, and real interest rates that are at historically low levels have had a favorable impact on the recovery of household consumption and investment.  In spite of this an indicator for public works projects that is significantly lower than expected as well as the climate could moderate economic activity data to a lower rate than the 4.5% anticipated last month.

Over the last month, the estimates for worldwide growth in 2010 did not change significantly.  Nevertheless, on average, the market analysts and some multilateral entities are still predicting a slowdown in the global economy in 2011.  Furthermore, the perception of risk in Europe remains at high levels and has affected the performance of the markets by depreciating their currencies with respect to the dollar.

The international prices for the commodities that are the most relevant to Colombia are still at historically high levels.  Meanwhile, the Colombian stock market, which had dropped partly because of increase in the perception of global risk, has returned to its rising trend. 

Since last September 15, the Colombian peso has depreciated compared to the dollar in a context of foreign exchange intervention through the daily purchases of at least US$20 million, the measures taken by the national government and the upswing in the perception of international risk.

The Board of directors believes that the posture of monetary policy has contributed to the growth of the economy without jeopardizing the possibility of achieving the inflation target.  

The Board will continue to closely monitor the international situation, the trend and projections of inflation, growth, the performance of the market in assets and reiterates that monetary policy will depend on new information that is available.

Bogota, December 17, 2010

Banco de la República Holds Its Intervention Interest Rate Steady

In its meeting today, the Board of Directors of the Banco de la Republica kept its benchmark interest rate unaltered.  As a result, the base rate for liquidity-expansion auctions will remain at 3%.  The decision was made with the following in mind:

– The annual consumer inflation was 2.28% in September, an amount that was lower than was expected by the market and the technical team at the Banco de la Republica.  This result is in line with the predictions made by the technical team that show, with a high degree of confidence, that inflation at the end of 2010 will be in the lower half of the long term target range (3% +/- 1pp).

– The core inflation indicators (the ones that exclude the prices for the most volatile products such as food) remained low and stable as did inflation expectations.

– The information on the Colombian economy that was received in the last few weeks shows some indicators getting stronger and suggests that it is growing at the pace predicted a couple of months ago.  The performance continues to be driven by consumer confidence, the high terms of trade, the strengthening of business investment and the recovery of the financial system portfolio.  A growth similar to what has been seen in 2010, close to 4.5%, is expected for 2011.

- Recently, the nominal interest rates in the financial system have continued to drop.  Specifically, the average interest rate for bank loans has gone down 41 bps in the last month.
- In Europe and the United States the outlook for growth in the short term is still modest.  In contrast, Asia and Latin America are showing a better pace and outlook for growth.  The international prices for the raw materials that are the most relevant to Colombia have not changed much recently and remain at historically high levels. 

- The Board of Directors believes that the posture of monetary policy has contributed to economic growth without jeopardizing the possibility of reaching the inflation target.

- Intervention in the foreign exchange rate through daily purchases that started on September 15 has been successful in reversing the peso’s tendency to revalue.  In the first month after the announcement, the currency kept its nominal value at the same time as the currencies of other emerging and developed countries appreciated.  Since then, the peso has depreciated along with other currencies but to a greater degree.  This is in spite of the fact that the intervention in Colombia has been significantly more limited than that of other countries.

The Board of Directors decided to extend the Bank’s intervention in the foreign exchange market and reinforce their intervention mechanisms.

- The Board decided to increase their purchase program for international reserves.  To do so, they will make daily purchases of at least US$20 million until at least March 15, 2011.  Previously, the daily purchase program extended up to at least January 15, 2011.

- The Board has strengthened its instruments for exchange rate intervention by linking the Bank to the Colombian Foreign Currency Clearing House, S.A. since October 14, 2010 which broadens the methods available for purchasing dollars on the market.

Last of all, the Board emphasized the measures taken by the national government to counteract the peso’s tendency to grow stronger and their commitment to reduce the fiscal deficit.  This is a basic step towards expanding the Bank’s possibilities for sterilized intervention in the foreign exchange market.

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

Bogota, October 29, 2010 (2:40 p.m.)

Banco de la República Holds Its Intervention Interest Rate Steady

At a meeting today, the Board of Directors of Banco de la República left its intervention interest rate unchanged.  As a result, the repo auction base rate will remain at 3%.  This decision was taken in light of the following factors.

Annual consumer inflation in August was 2.31%, which is slightly more than was anticipated by the market and by Banco de la República’s technical team.  However, the outcome for inflation in August is consistent with the technical team’s forecasts; these suggest, with a high degree of confidence, that inflation will be near the mid-point of the long-term target range in 2010 and 2011 ((3% +/- 1pp).

The indicators of core inflation (which does not include the prices of more volatile items, such as food) remained stable and inflation expectations continued at low levels.

The information received in the last few weeks indicates the Colombian economy is growing at the expected rate, without brining inflationary pressures to bear. The momentum in the economy has been fueled by consumer confidence, more corporate investment and recovery of the loan portfolio in the financial system.

Growth in Europe and the United States probably will not live up to earlier estimates.  In contrast, Asia and Latin America show better growth rates. The Colombian economy continues to perform in an environment that favors the sustainability of its growth.

The Board of Directors evaluated the results of its exchange strategy and ratified its decision to coordinate measures with the Ministry of Finance and Public Credit to reinforce the instruments for intervention and sterilization.  Likewise, international reserves will continue to be accumulated for at least four months, through daily purchases of at least US$20 million via competitive auctions.

The Board of Directors believes the stance of its monetary policy has contributed to economic growth in Colombia, without jeopardizing the inflation target.

The Board of Directors will continue to keep a close watch on the international situation and on forecasts and performance with respect to inflation and growth.  It also reiterated that monetary policy in the future will depend on whatever new information becomes available.

Bogotá, Colombia
September 24, 2010

Banco de la República Makes No Change in Its Intervention Interest Rate

At a meeting today, the Board of Directors of Banco de la República left its intervention interest rate unchanged.  As a result, the repo auction base rate will remain at 3%.  This decision was taken in light of the following factors.

• Annual consumer inflation was 2.24% in July, which is less than was expected by the market and by Banco de la República´s technical team.

• The indicators of core inflation (which does not include the prices of particularly volatile items, such as food) declined once again and are still in the lower part of the long-term target range for inflation set by the Board of Directors (3% +/- 1 pp). Inflation expectations remain low.

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

• The information received in recent weeks continues to indicate the Colombian economy is growing faster than expected, without generating inflationary pressure. The increase in consumer and producer confidence confirms the build-up in the Colombian economy, as do other factors such as the momentum in a number of leading indicators and the soundness of the financial system.

• The world economy continued to grow, although at a slower pace than during the first half of the year. This is due to the slowdown witnessed in the United States. However, one sees an increasing amount of recovery in the Latin American economies.  On the other hand, the international markets stabilized after the financial crisis in Europe.

• Accordingly, the Colombian economy could see favorable terms of trade during the remainder of the year and in early 2011, along with larger capital flows, low international interest rates and a weak recovery in external demand for our non-traditional products.

• Under the current circumstances, there is a tendency for the peso to appreciate against the dollar as a result of the external situation and the momentum in the economy.

• The Board of Directors analyzed the exchange situation and particularly the  use of sterilization instruments in addition to those employed in  the past. The idea is to increase the already extensive capacity for exchange intervention.  The Finance Minister advised the Board of the government´s decision to adopt measures to encourage imports and, in doing so, to increase the demand for foreign exchange and to reduce costs for the productive sector to improve its productivity.

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

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

Bogotá, Colombia
August 20,  2010

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. Consequently, the base repo auction rate will remain at 3%. This decision was taken in light of the following factors:

Annual consumer inflation was 2.25% in June, which is higher than it was in April (18 b.p.) but less than anticipated by the Central Bank’s technical team.

Most indicators of core inflation (which does not include the more volatile items, such as food prices) fell once again and persist 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 as well.

The outcome for inflation during the past month is consistent with the technical team’s forecasts, which suggest– with a high degree of confidence – that inflation will remain within the long-term target range during 2010 and 2011.

The information received in the last few weeks indicates the Colombian economy is growing faster than expected, without bringing inflationary pressures to bear. The increase in exports, bolstered by recovery in global economic growth and by 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. In view of these circumstances, the Central Bank’s technical team raised its GDP growth forecast for 2010, indicating it will be within a range of 3.5% to 5.5%, with 4.5% being the most likely scenario.

The global economy continued to grow during the second quarter, thanks to better performance by the emerging economies and by the United States. The mounting recovery of the Latin American economies is a high point in this respect. The international markets stabilized after the financial crisis in Europe. All of this prompted a reduction in risk premiums and caused a number of the region’s currencies to appreciate, including the Colombian peso.

The Board of Directors believes its expansive monetary policy contributes to economic growth in the short term.

The Board will continue to keep a close watch 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 inflation becomes available.

Bogotá, Colombia

July 23, 2010

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

June 18, 2010

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 April was 1.98%. This is slightly higher than in March (14 bp), but within what was anticipated by the Central Bank’s technical team.

The indicators of core inflation (which does not include the prices of more volatile items such as food) continued to decline and are in the lower part of the long-term target range set for inflation by the Board (3% +/-1%). Inflation expectations continued to subside.

The outcome for inflation during the past month is consistent with the technical team’s forecasts, which show – with a high degree of confidence - that inflation during 2010 and 2011 will be within the long-term target range.

The information received in recent weeks indicates the economy has been recovering faster than expected, without generating inflationary pressure.  Factors such as added confidence among market players and the momentum in several leading indicators confirm the increase in growth.

Global economic recovery has been affected by the public debt crisis in Greece and its possible contagion to other European countries.  The effects of that crisis are still uncertain. However, the recovery in Asia, the United States and the Latin American economies is growing strong.

The Board believes the expansive monetary policy it adopted, including the recent 50 bp cut in its benchmark rate, contributes to economic growth in an environment characterized by a healthy financial system.

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

May 27, 2010

The Central Bank of Colombia Lowers its Intervention Interest Rate by 50 Basis Points

At a meeting today, the Board of Directors of the Central Bank of Colombia lowered its intervention interest rate by 50 basis points. This decision placed the repo auction base rate at 3.00% and was taken in light of the following factors.

Annual consumer inflation in March was 1.84%, which is 25 b.p. less than in February.  This is far better than the market expected and exceeds the level anticipated in the technical studies done by the Central Bank.

The indicators of core inflation (which does not include the prices of particularly volatile items such as food) continued to decline and are in the lower portion of the long-term target range for inflation set by the Board (3%,+/-1%). Inflation expectations continued to weaken.

The new forecasts developed by the technical team show - with a high degree of confidence - that inflation during 2010 and 2011 will be within the long-term target range.  The risk of increased inflation has declined because El Niño weather had less of an impact on food prices and because appreciation of the peso has reduced the variation in prices for tradable goods.

The good performance of inflation and inflation expectations confirms that Colombians believe the monetary policy is credible and are incorporating the Board’s long-term target into their decisions.

The information received in recent weeks indicates the economy is recovering faster than expected, without generating inflationary pressures. Factors such as added growth in the world economy, more confidence among market players and the momentum in various leading indicators show the strength of that growth.

Despite more economic growth, there is still a negative gap. Coupled with the good performance of inflation and inflation expectations, it allows for an even more expansive monetary policy, without jeopardizing inflation targets and macroeconomic stability.

The Board of Directors will continue to keep a close watch 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.

Given the increase in Treasury deposits with the Central Bank, it also was decided at today’s meeting that the monthly sales of TES, instituted to offset the monetary effect of reserve accumulation, would be suspended.

Bogotá, Colombia
April 30, 2010

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 the intervention interest rate unchanged. Accordingly, the base repo auction rate will remain at 3.50%. This decision was taken in light of the following factors:

Annual consumer inflation in February was 2.09%, which is one basis point lower than in January and better than the market expected. It also is better than the level anticipated in technical studies done by the Central Bank. The indicators of core inflation (which does not include prices of the more volatile items, such as food) declined, staying within the target range set by the Board of Directors, which coincides with the long-term range (between 2% and 4%).

The Central Bank’s inflation forecasts include temporary food price hikes occasioned by El Niño weather. However, those increases are expected to reverse during the second half of the year.  Up to now, the annual variation in food prices has been better than expected.

Industrial production and retail sales in the U.S. economy are up for the year to date, while China and India continue to experience accelerated growth, which has allowed for high commodity prices.  On the other hand, growth in the Latin American countries is showing signs of recovery.

DANE, the government statistics agency, reported 0.4% annual GDP growth in 2009 and 2.5% annual GDP growth in the fourth quarter of that year.  These results confirm the Colombian economy is sound enough to withstand external shocks.

Available economic indicators for the year to date, particularly with respect to retail sales and the demand for electricity, also suggest more momentum in the economy.  This is corroborated by the expectations of the business community, which are still relatively high.  All of these factors indicate the Colombian economy is on the road to recovery.

The Central Bank’s expansive monetary policy has allowed for a steady decline in interest rates on deposits and lending.  The Board of Directors anticipates the benchmark rate at it now stands will continue to stimulate economic growth in an environment characterized by a healthy financial system.

The Board of Directors will continue to keep a close eye on the international situation, as well as inflation and economic forecasts and performance. It reiterated that monetary policy in the future will depend on whatever new information becomes available.

Bogota, Colombia
March 26, 2010

The Central Bank of Colombia leaves its intervention interest rate unaltered

At a meeting today, the Board of Directors of the Central Bank of Colombia left the intervention interest rate unaltered. Accordingly, the repo auction base rate will remain at 3.50%. This decision was based on the following factors:

Annual consumer inflation in January was 2.1% as opposed to 2% at the end of December.  The indicators of core inflation (which does not include prices of the more volatile items such as food) rose slightly, as did inflation expectations one year out.  However, those indicators are still within the target range set by the Board of Directors, which coincides with the long-term range for inflation (between 2% y 4%).

The behavior of annual inflation in January was due largely to the increase in regulated prices. Food prices continued to decline, in spite of El Niño weather. There were price hikes for perishables, but they were more than offset by non-perishables and food outside the home.

The Central Bank’s inflation forecasts include temporary increases in the price of food as a result of El Niño weather. However, those increases are expected to be reversed during the second half of the year.

During the fourth quarter of 2009 and so far this year, the economy in the United States, which is Colombia’s major trading partner, grew more than international analysts expected. The mid-term and long-term outlook for the economies in the region and for other emerging countries remains favorable.

The figures at hand show the slow recovery in quarterly GDP levels continues. Expectations in the business community have evolved favorably and there is more momentum in private consumption.

 The Central Bank’s expansive monetary policy has allowed for a steady decline in interest rates on deposits and lending. The Board of Directors expects the benchmark rate, as it now stands, will continue to stimulate economic growth in an environment characterized by a healthy financial system.

The Board of Directors will continue to monitor the international situation closely, as well as performance and forecasts for inflation and economic growth. It reiterated that monetary policy in the future will depend on whatever new information becomes available.

Bogotá, Colombia
February 26, 2010

At a meeting today, the Board of Directors of the Central Bank of Colombia agreed to make no change in the intervention interest rate. Accordingly, the repo auction base rate will remain at 3.50%. This decision was based on the following factors:

Annual consumer inflation ended the year at 2%. The indicators of core inflation (which excludes the prices of the more volatile items such as food) continued to decline, while expectations for inflation one year out remain within the target range set by the Board of Directors, which coincides with the long-term range (between 2% and 4%).

December witnessed another generalized decline in prices for the various items in the basket, encompassing a wide variety of goods and services.

The world economy continued to recover, thanks largely to growth in the Asian countries.  The rise in international trade and higher commodity prices are a reflection of this revival and prompted an increase in the growth forecasts for 2010.  The medium and long-term outlook for the region’s economies and for other emerging countries remains favorable. However, the growth forecasts for Venezuela were revised downward once again.

The information at hand shows quarterly GDP levels continue to recover. There also are indications that aggregate demand is on the mend. These signs include an improvement in the confidence indicator for consumers and the industrial sector associated with the construction of civil works, stabilization of the indicators for installed capacity, and the recovery in raw material imports.

The expansive monetary policy has allowed for a steady decline in interest rates on deposits and lending. The Board of Directors expects the benchmark rate, as it now stands, to continue to stimulate economic growth in an environment characterized by a stable financial system.   

The Board of Directors will continue to keep a close eye on the international situation and on performance and forecasts with respect to inflation and economic growth.  It reiterated that future monetary policy will depend on whatever new information becomes available.

Bogotá, Colombia
January 29, 2010 (12:00 noon)

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 agreed not to change the intervention interest rate, holding it steady at 3.50%.  That decision was based on the following factors:

• Annual consumer inflation in November was 2.37%, prolonging the downturn observed throughout the year. The core inflation indicators (which do not include the more volatile items, such as food) continued to decline.  Inflation expectations were down as well, and are now within the range determined by the Board for next year, which coincides with the long-term range for inflation (between 2% and 4%).

• November witnessed a generalized price reduction for a number of items in the basket, encompassing a wide range of goods services.  Accordingly, inflation at year’s end will be below the mid-point in the long-term target (3%) and close to 2%.

• Although the external context has improved in recent months, economic recovery in the developed countries remains slow.  The intermediate and long-term prospects for the Latin American economies and for other emerging countries are more favorable.  Nevertheless, the growth projections for Venezuela show a significant drop in GDP, both for this year and in 2010.

• The information at hand shows continued recovery in quarterly GDP levels, with low annual growth rates.

• The Central Bank’s expansive monetary policy has allowed for the steady reduction in interest rates on deposits and lending. The Board of Directors expects the benchmark rate, as it now stands, to continue to stimulate economic growth in an environment characterized by a healthy financial system.

The Board of Directors will continue to keep a close eye on the international situation, inflation and inflation forecasts and economic performance.  It reiterated that future monetary policy will depend on whatever new information becomes available.

Bogota, December 18, 2009

IMF Executive Board Completes Review of Colombia’s Performance under the Flexible Credit Line
International Monetary Fund
Washington, D.C. 20431 USA

The Executive Board of the International Monetary Fund (IMF) today completed its six-month review of Colombia’s qualification for the arrangement under the Flexible Credit Line (FCL). The Board reaffirmed Colombia’s continued qualification to access FCL resources. The Colombian authorities have indicated they intend to continue treating the arrangement as precautionary and do not intend to draw on the line.

The one-year arrangement for Colombia of SDR 6.966 billion (about US$11.13 billion) was approved on May 11, 2009 (See Press Release No. 09/161). Colombia was the third country to gain access to an FCL, following Mexico and Poland. The IMF designed the FCL for countries that have a history of sound macroeconomic policies and institutional frameworks. The FCL is designed to help countries’ crisis efforts by providing the flexibility to draw on the credit line at any time. The FCL was created as part of an overhaul of the Fund’s lending framework this spring (see Press Release No. 09/85 and Public Information Notice 09/40).

Following the Executive Board discussion of Colombia, Mr. John Lipsky, First Deputy Managing Director and acting Chairman of the Board, made the following statement.

”Last May, at a time of heightened global uncertainty, the IMF Executive Board approved an FCL arrangement for Colombia to serve as additional balance of payments protection, providing further room for the authorities to pursue countercyclical policies in the context of strong institutional policy frameworks. Developments since the FCL approval have been generally positive, financial market conditions have improved and perceptions of tail risks to the balance of payments have subsided.

”The upturn in the global environment has improved the outlook for the balance of payments and economic activity. Exports and remittances have performed better than anticipated as commodity prices recovered faster than expected. Roll-over rates, in particular for the public sector, also have been higher than previously anticipated. Against this background, economic recovery is taking hold, and growth for the year is expected to remain positive.

”Colombia’s very strong institutional and policy frameworks provided scope to support domestic demand, with prudently expansionary macroeconomic policies. Since the FCL was approved, monetary policy has been eased further, while inflation expectations remained anchored; the exchange rate has continued to be an effective shock absorber; fiscal policy has helped sustain domestic demand, in particular through an increase in public investment; and, the financial system has continued to show resilience in the context of effective financial sector supervision. Looking ahead, monetary policy will continue to be guided by the inflation targeting framework and fiscal policy by a medium term framework, which should allow fiscal consolidation to restart by 2011.

”Against this backdrop of very strong policy frameworks and actions, the Executive Board today reaffirmed that Colombia continues to meet the qualification criteria for the FCL. Accordingly, access to resources under the FCL—which the authorities intend to continue to treat as precautionary—will remain available as envisaged through May 2010,” Mr. Lipsky said.

Washington, D.C. 20431 USA, October 28, 2009

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.

Bogota, October 23, 2009

The Banco de la República reduces its intervention interest rate by 50 basic points

In its meeting today, the Board of Directors of the Banco de la República decided to reduce its intervention interest rate by 50 basic points. In this way, the base rate for expansion auctions will be 4%. The decision resulted from the following considerations:

Annual inflation for the consumer fell in August for the tenth consecutive month and reached 3.13%.  The indicators for basic inflation (that which excludes the prices of the most volatile products, like foodstuffs) continued to fall. Inflation expectations are near the long-term target range set by the Board (between 2% and 4%).

Lower inflationary pressures continue to be the case, as the result of several factors: 1) the weakness of internal and external demand; 2) lower inflation expectations; and 3) a reduction in the prices of basic products with regard to the maximum level reached in 2008; and 4) the appreciation of the peso. In consequence, the Board foresees that the end of the year will find annual inflation near 3.5%.

The results for the growth of the GDP in the second quarter met expectations, especially in the strong growth of civil works. For its part, the performance of consumption in homes and private investment was lower than what was forecasted. 

The expansive monetary policy has allowed for a consistent reduction of the deposit and placement interest rates. The Board of Directors expects this trend to continue and to stimulate economic growth in an ambit characterized by a healthy financial system, in line with the improvement of the indicators for confidence among consumers and businessmen.

The reduction by 50 basic points of the intervention rate aims to strengthen the recuperation of the economy and reduce the possible negative effects of the restrictions on commerce which have appeared and of the appreciation of the peso. The intervention rate is expected to be stable in the near future.

The Board will continue to undertake a careful monitoring of the international situation, which is beginning a gradual recovery, and of the performance of and projections for inflation and growth. The Board reiterates that future monetary policy will depend on the emergence of new information.

Bogotá, September 25, 2009

The Banco de la República maintains its intervention interest rate

At its meeting today the Board of Directors of the Banco de la República (Colombia´s central bank), decided, by a majority vote, to keep its intervention rate unchanged. In this way, the base rate for expansion auctions will continue at 4.5%. The decision reflected the following considerations:

Annual inflation for the consumer has fallen for the ninth consecutive month and reached 3.28% in July.  This decline was again seen in the prices of foodstuffs and regulated goods (fuel, public services and transport). The indicators for basic inflation (that which excludes the prices of the most volatile products, like foodstuffs) continued to fall. Inflation expectations are near the upper limit of the long-term target range set by the Board (between 2% and 4%).

Lower inflationary pressures continue to be the case, as the result of several factors: 1) the weakness of internal and external demand; 2) lower inflation expectations; and 3) a reduction in the prices of basic products with regard to the maximum level reached in 2008. In consequence, the Board foresees that the end of the year will find annual inflation below the lower limit of the target range (4.5%).

Thanks to the reduction of the Banco de la República´s intervention rate, the  deposit and placement interest rates have consistently fallen. The Board of Directors expects this decline to continue and to stimulate economic growth. For its part, the financial system shows a healthy performance. It is worth noting the large issuances of bonds by the real sector which have complemented credit from the financial sector.

Indicators for opinion and confidence among companies and consumers continue to show improvements for the second semester. Furthermore, the latest results for industry, commerce and construction are in line with the projections for  growth made by the Bank´s technical team for the end of the year.

The new information confirms that the world economy is stabilizing. A slow economic recuperation is expected in the second semester and there are improved projections for growth in the year 2010.

The strong monetary expansion, lower variation in the prices of foodstuffs and regulated goods, a less negative external ambit and a greater dynamism in civil works leads the Bank to expect a gradual recuperation of economic growth from the second semester of this year onwards.

The Board will continue to undertake a careful monitoring of the international situation and the performance of and projections for inflation and growth, and reiterates that future monetary policy will depend on the emergence of new information.

Bogotá,  August 28, 2009

The Central Bank of Colombia Leaves its Intervention Interest Rate Unchanged

In a meeting today, the Board of Directors of the Central Bank of Colombia decided, by a majority vote, to leave its intervention interest rate unchanged. As a result, the repo auction base rate will remain at 4.5%.

Annual consumer inflation was 3.81% in June, having fallen for the eight month in a row.  The decline was more than expected and is due, once again, to food and regulated prices. The core inflation indicators continued to decline and expectations for inflation in the medium and long term are near the ceiling of the long-term target range set by the Board (3%+/- one percentage point).

Price performance is an indication that weak internal and external demand, lower inflation expectations and the drop in commodity prices compared to the high point in 2008 are being reflected in less inflationary pressure.  The Board expects annual inflation to end the year below the floor of the target range (4.5%).

The world economy is stabilizing. Several economic indicators in the United States suggest a break in the negative trend in output growth in that country.   Economic conditions in Europe continue to weaken.  Growth in China has strengthened considerably, which has had a favorable impact on commodity prices and on the Asian economies.  Growth in most of the Latin American economies continues to exhibit a moderate reduction and a drop in inflation.

The risk premiums of a number of Latin American countries have declined and, once again, the region’s major currencies have appreciated with respect to the dollar.  The Colombian peso is no exception and is stronger than expected, fueled as well by the successful placement of Colombian corporate bonds on the international market to finance investment projects.  The Board of Directors of the Central Bank is aware of the risks associated with peso appreciation in a climate where external demand is weak and will continue to keep an eye on the exchange market.  
In Colombia, new information at hand continues to reflect better indicators of business and consumer opinion and confidence for the second half of this year.  The annual growth rates for exports and imports in dollars are negative, and terms of trade are at levels close to those posted in mid-2007. Remittances from abroad have been falling throughout the year.

The drop in lending and deposit rates has been persistent, thanks to the Central Bank’s intervention rate cut.  The Board of Directors expects the reduction to continue and to stimulate economic growth.   The performance of the financial system is healthy.

The Board of Directors will continue to monitor the international situation carefully, along with the performance and forecasts for inflation and economic growth. It reiterated that monetary policy in the future will depend on whatever new figures become available.  

Bogotá, Colombia
July 24, 2009

The Central Bank of Colombia Lowers its Intervention Interest Rate by 50 Basis Points

At a meeting today, the Board of Directors of the Central Bank of Colombia cut the Bank’s intervention interest rate by 50 basis points. This reduction places the repo auction rate at 4.5%.

Annual consumer inflation in May was 4.77%, having fallen for the seventh month in a row. Once again, the decline was in food prices, as well as non-tradables and regulated prices. The core inflation indicators continued to fall and medium and long term expectations of inflation were in the upper half of the long-term target range set by the Board (3%+/- one percentage point).

The way prices are performing confirms that less inflationary pressure is a reflection of the weakness in internal and external demand, lower inflation expectations and the drop in commodity prices compared to the high point in 2008.   The Board expects annual inflation to decline appreciably in June and to end the year below the midpoint of the target range (5%).

The tendencies in several expectation indicators in the industrialized economies have changed for the better, which could suggest they may be stabilizing. The  production comeback in China and India, coupled with the reactivation of exports in other Asian countries, has stimulated commodity purchases and improved performance on the capital markets.   However, the negative effects of the world crisis are expected to continue throughout the year.   Most Latin American economies have confirmed a contraction in output growth during the early months of the year, as well as a pronounced drop in inflation. The sharp devaluation in Latin American currencies witnessed at the start of  2009 has been corrected in a context marked by a weak dollar and less risk perception for the emerging market economies.

The international crisis has affected Colombia primarily by dampening consumer and producer expectations and slowing exports and remittances.  Available figures for the second quarter show the expectations of the business community and consumers reveal signs of recovery for the second half of the year, even though economic activity remains weak.  Lending continues to grow at a good pace, fueled largely by commercial borrowing, and the performance of the financial system is still healthy. The Board of Directors expects interest rates on business and household loans to continue to fall.

The new cut in the intervention rate, coupled with the reductions approved since December 2008, which add up to 550 basis points,  reflects an expansive monetary policy that promotes sustainable growth; in other words, growth in an environment of low and stable inflation.  Much of the impact of these rate cuts on the economy will be seen in the next few quarters.  Given the data available up to now,   no further changes in the intervention interest rate are expected in the near future.  The strong increase in money supply, less variation in food and regulated prices, a less negative external environment, and more momentum in civil works suggest economic growth will begin to recover gradually in the second half of the year..

The Board will continue to carefully monitor the international situation,  inflation, economic growth, and the forecasts. It reiterated that monetary policy in the future will depend on the new figures that become available.

June 19, 2009

The Banco de la República reduces its intervention interest rate by 100 basic points

At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points.  Thus, the base rate for expansion auctions will be 5%.

The annual inflation rate for the consumer in April was 5.73%, the sixth consecutive monthly fall.  This decline was seen in the prices of both foodstuffs and other basic household goods: what stood out was the deceleration of the prices of non-tradable and regulated goods.  The indicators for basic inflation continued to decline during the month and inflation expectations approached the medium- and long-term target range (3%+/- one percentage point).

The above confirms that the weakness of internal and external demand, the reduction of inflation expectations and the fall in the international prices of basic products compared with the maximum level reached in 2008 are strongly reflected in the smaller inflationary pressures. The Board believes that annual inflation will continue to fall in the following months and may end the year below the midpoint of the target range (5%).

  The available data on the growth of the product of countries in the first quarter of the year confirms the contraction of the world economy. In recent weeks, however, there have been signs of stabilization in the economy of the United States and of an important recuperation in China. In a similar manner the prices of assets in the industrialized and emerging economies have shown a positive performance. In Latin America the strong devaluation of currencies registered at the beginning of 2009 has corrected itself and risk premiums have fallen.

In Colombia, the international crisis has mostly made itself felt through the deterioration of consumer and producer expectations and a slower dynamic of exports and international remittances. The latest data on industry, commerce and construction signal strong declines when they are adjusted for working days. Nevertheless, the financial system continues to show a healthy behavior.

The intervention interest rate has been reduced by 500 basic points in about five months and its current level is clearly expansive. The interest rates on loans for companies and families are also expected to continue to fall.  Monetary thrust, a less negative external environment and the greater dynamism of public investment allow for the hope of a gradual recuperation of economic growth beginning in the second semester of this year.

On the basis of the information available up to now, the Board foresees that any eventual reduction of its interest rate in the future will be smaller than those observed recently.

The Board will continue to undertake a careful monitoring of the international situation,  the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá, 

May 29, 2009 (12: 54 p.m.)

The Banco de la República reduces its intervention interest rate by 100 basic points

At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points.  Thus, the base rate for expansion auctions will be 6%.

The annual inflation rate for the consumer in March was 6.14%, the fifth consecutive monthly fall.  This decline was seen in the prices of both foodstuffs and other basic household goods: what stood out was the deceleration of the prices of non-tradable and regulated goods.  The indicators for basic inflation continued to decline during the month, while inflation expectations continued to lie within the target range set by the Board (5%+/- 1/2 percentage point).

The reduction of inflation and inflation expectations confirm that the weakness of internal and external demand and the fall in the international prices of basic products are being reflected in weaker inflationary pressures. The Board believes that annual inflation will continue to fall in the following months and may end the year in the target range.

The world economy deteriorated more than it was expected to in the first quarter of 2009. While some industrialized countries show signs of stabilization, it is expected that the negative effects of the world crisis will last throughout the year. In Latin America the generalized contraction of industrial production and the fall of inflation is an established fact. What stands out is that the strong devaluation of Latin American currencies registered at the beginning of 2009 has corrected itself.

The available information shows a similar behavior in the Colombian economy, with a weaker dynamic in exportations and the consequent weakening of growth. The latest data on industry and commerce signal strong declines. However, the financial system continues to show a healthy performance. In these conditions, and taking into account the low level of utilized capacity, it is expected that the country´s inflation will continue to fall.

The new reduction of the intervention interest rate, added to those realized since December 2008, have stimulated economic growth. It has been possible to make these policy decisions rapidly, considering that recent developments in Colombia and the world create a balance of risks  that tends to be low, both for economic activity and inflation.

 The Board will continue to undertake a careful monitoring of the international situation,  the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá, 

April 30, 2009 (11: 39 p.m.)

The Banco de la República reduces its intervention interest rate by 100 basic points

At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points.  Thus, the base rate for expansion auctions will be 7%.

The annual inflation rate for the consumer in February was 6.47%, the fourth consecutive monthly fall.  This decline was seen in the prices of foodstuffs.  The indicators for basic inflation  rose during the month, while inflation expectations lay within the target range set by the Board (5%+/- 1/2 percentage point).

The reduction of inflation and inflation expectations confirm that the weakness of internal and external demand and the fall in the international prices of basic products are being reflected in weaker inflationary pressures. The Board now has more confidence that annual inflation will continue to fall in the following months and will lie  within the target range at the end of 2009.

The world economy continues to present a negative panorama. During the month international agencies like the IMF and World Bank issued projections of negative growths in the world economy in 2009. This fall has led Latin America to show a strong deceleration in economic growth and caused many central banks to reduce their reference rates. The devaluation of the region´s currencies registered between January and February was corrected in March, especially in Colombia, where the recent devaluation of the peso had been greater than that observed in other countries.

The Colombian economy has shown a greater resistance to the world crisis despite the fall in external demand which is reflected in a weaker dynamic in exports and the consequent weakening of growth. The latest data on industry and commerce signal strong falls. In these conditions, and taking into account the low level of utilized capacity, it is expected the country´s inflation will continue to fall.

The accumulated reduction of 300 basic points in the intervention interest rate have stimulated economic growth. It has been possible to make these policy decisions rapidly, considering that recent developments in Colombia and the world create a balance of risks  that tends to be low, both for economic activity and inflation.

The Board will continue to undertake a careful monitoring of the international situation,  the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá, 

March 20, 2009 (12: 55 p.m.)

The Banco de la República reduces its intervention interest rate by 100 basic points

At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points.  Thus, the base rate for expansion auctions will be 8%.

The annual inflation rate for the consumer in January was 7.18%, the third consecutive monthly fall.  This decline, greater than what was expected, was seen in most of the items of basic household goods and especially the foodstuff group.   The indicators for basic inflation also fell during the month, and inflation expectations lay within the target range set by the Board (5%+/- 1/2 percentage point).

The reduction of inflation and inflation expectations confirm that the weakness of internal and external demand and the fall in the international prices of basic products are being reflected in weaker inflationary pressures. The Board now has more confidence that annual inflation will continue to fall in the following months and will lie  within the target range at the end of 2009.

The world economy continues to present a negative panorama despite the strongly expansionist policies of many countries During the month the decline in growth of most of the developed and emerging economies was confirmed, as were the weaker inflationary pressures, which has allowed many central banks to reduce their reference rates. What stands out is that the currencies of the region have shown significant depreciations, especially in Mexico and Colombia.

The new information that has become available confirms the weakening of productive activity in Colombia. The latest data on industry and commerce continue to register important declines, to which is added the effects of a greater deterioration of world activity on productive activity, in the form of lower exports and terms of trade, a decline in levels of confidence and more expensive capital flows.

These conditions allowed the Board to reduce the intervention rate by a quicker rhythm than that employed in the previous two months, without this implying similar reductions in the future. In this way, monetary policy and the devaluation of the peso, insofar as they do not compromise the attainment of the inflation targets, have supported demand and the future growth of the economy.

The Board will continue to undertake a careful monitoring of the international situation,  the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá, 

February 27, 2009 (2: 30 p.m.)

The Banco de la República reduces its intervention interest rate by 50 basic points

At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 50 basic points.  Thus, the base rate for expansion auctions will be 9%. This decision was made despite the call for a greater reduction by some Directors.

The rate of inflation for the consumer in December 2008 was  7.67%, which places it above the target set by the Board of Directors for this year. However, it is expected that the weakness of internal and external demand and the fall of the international prices of basic products will result in lower inflationary pressures in the course of 2009. The Bank trusts that consumer inflation this year will lie within the target range and continue its downward path towards the medium- and long-term objective. (3% +/- 1 percentage point).

The world economy continues to be negative, despite the strongly expansionist policies of many countries. Most of the developed economies are showing a contraction of growth, while those of the emerging countries are also decelerating, in some cases in a drastic manner.

As the world economy grows at a rate lower than its long term tendency and the international prices of basic products fall, world inflation will significantly fall in 2009.

The new information that has become available confirms the weakening of productive activity in Colombia. The latest data on industry and commerce continue to register a decline greater than that expected by the Board in its previous meeting. To this situation are added the effects of a greater deterioration of world activity on productive activity, in the form of lower exports and terms of trade, a decline in levels of confidence and more expensive capital flows.

The Board of Directors believes that conditions exist to continue reducing the intervention rate and consolidate the change of position in monetary policy that began in the last quarter of the previous year.

The Board will continue to undertake a careful monitoring of the international situation,  the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available.

Bogotá, January 30, 2009 (1: 55 p.m.)

The Central Bank of Colombia Lowers Its Intervention Interest Rate by 50 Basis Points

At a meeting today, the Board of Directors of the Central Bank of Colombia unanimously agreed to lower its intervention interest rate by 50 basis points. This places the repo auction base rate at 9.50%

The world economy is in a sharp decline.  Most of the developed economies show signs of contraction, while the emerging market economies continue to grow, but at a slower pace. World inflation will be much less in 2009 insofar as the world economy expands at a rate below its long-term tendency and international commodity prices decline.  If the exchange rate remains stable and an appropriate commercial policy is applied, particularly with respect to food imports, this reduction in international inflation should pass through relatively quickly to consumer prices in Colombia.

The new figures at hand confirm the weakening in productive activity, predominantly in industry and commerce.  Household and business confidence has been affected by external and internal factors. As a result, growth in internal demand is expected to be low.  Added to this situation are the difficulties experienced by Colombia’s major trading partners and the drop in international prices for our main exports. Weaker growth in demand and output means less inflationary pressure.

Annual consumer inflation declined in November from 7.94% to 7.73%.  Although this is still a very high rate, it is expected to continue to drop towards the target range set for 2009, which is 4.5% to 5.5%.

The last few weeks have witnessed an improvement in the region’s access to external financing.  Long-term interest rates have declined and the loan portfolio held by the financial system continues to show momentum.

The intervention rate cut consolidates a change in monetary policy stance that has been in the works for several months.  The possibility of continuing to relax the country’s monetary policy in 2009 will depend essentially on whether inflation behaves as anticipated and on expectations with respect to the targets.

The Board will continue to monitor the international situation carefully, as well as the forecasts for inflation and growth.  It reiterated that monetary policy in the future will depend on whatever new figures become available.

Bogotá, December 19, 2008

Inflation target set at 5% for 2009 and no change in the intervention interest rate

At a meeting today, the Board of Directors of the Central Bank of Colombia set the inflation target for 2009 within a range of 4.5% to 5.5%, with the specific target for legal purposes being 5%.  It also set the mid-point of the inflation target-range for 2010 at 4% and is confident that inflation in 2011 will be within the long-term target-range
(3% +/- 1 percentage point).

The new inflation forecast takes into account the effects of the dramatic increase in food prices this year and in those for regulated goods and services. These price shocks, which were felt by every economy in the world, produced a sharp rise in inflation and made it impossible to meet the targets.

The monetary policy decisions are intended to return inflation to a path that is convergent with the long-term target.  As for 2009, a reversal or reduction in these relative price shocks and the cumulative effect of the monetary-policy adjustments made since 2006 are expected to reduce annual consumer inflation substantially. Announcement of the new targets demonstrates the Board’s commitment to meeting the long-term target. It also is a fundamental criterion with which to guide decisions on prices and wages in the economy.

The Board of Directors also decided, by a majority vote, to hold the intervention interest rate steady.  Consequently, the base rate for repo auctions will remain at 10%. It was noted that adoption of a less restrictive monetary policy stance will be possible if mid-term inflationary pressures subside.  

The Board reiterated its commitment to supply the liquidity the economy needs by the end of the year, through the mechanisms announced at its last meeting.   The amount of liquidity will take into account the performance of the deposits the national government has with the Central Bank of Colombia.

The Board will continue to carefully monitor the international situation and the forecasts for inflation and growth. It reiterated that monetary policy in the future will depend on the new information that becomes available.

Bogotá, November 21, 2008

The Board of Directors of the Central Bank of Colombia Appoints Mr. José Darío Uribe as Governor for the Term Starting on January 4, 2009

At a meeting today, the Board of Directors of the Central Bank of Colombia appointed Mr. José Darío Uribe Escobar as Governor of the institution for a four-year term beginning on January 4, 2009.

Mr. Uribe has been the Governor of the Central Bank of Colombia since 2005. He holds a degree in business administration from EAFIT University, a degree in economics from the University of the Andes, and a Master of Economics and a Ph.D. in Economics from the University of Ilinois.

Bogotá, October 24, 2008

The Central Bank of Colombia holds its interest rate steady, reduces bank reserve requirements and adopts other measures to provide liquidity

At a meeting today, the Board of the Directors of the Central Bank of Colombia voted, by a majority, to hold its intervention interest rate steady. Consequently, the base rate for repo auctions will remain at 10%.

Annual consumer inflation at September was 7.57%, which is 30 b.p. less than the rate in August.  This positive outcome was the result of lower food prices, since other items in the market-basket, such as regulated prices, exerted upward pressure. The core inflation indicators were up again, while inflation expectations remained stable. However, they were still above target.

New information confirms that productive activity in Colombia is weakening, particularly in industry and commerce.  The past month saw the international context deteriorate sharply. This has accentuated the restriction on credit worldwide and meant less growth for our major trading partners.   Colombia’s productive sector is also feeling the negative effects of higher costs and the drop in demand.

Asset prices remain extremely volatile and there has been an increase in risk premiums and external interest rates for all emerging market economies.  In Colombia, this phenomenon has been reflected in peso devaluation.

Food prices, peso devaluation and, eventually, elevated wage costs could keep total inflation high in the months ahead. However, the expectation is that weak demand and the recent decline in international commodity prices will mean less inflationary pressure in the future.  To the extent that mid-term inflationary pressures continue to drop, it is appropriate to consider a shift towards a less restrictive monetary policy.

Therefore, to help money and credit markets function properly and to facilitate a suitable supply of liquidity, the Board of Directors decided unanimously to facilitate liquidity management within the financial system during the months ahead by adopting the following measures.

A reduction in bank reserve requirements from 11.5% to 11% for current and savings accounts, and from 6% to 4.5% for term deposits under 18 months.  These reductions will take effect as of the two-week reserve maintenance period that begins on November 19.  This measure is expected to free up nearly one trillion pesos in resources during the month of December.

An extension from two to three weeks in the reserve calculation for the end of the year.

Temporary liquidity granted with repo operations that mature at 14 and 30 days. The amounts will be announced in due course.

The definitive purchase of Col$ 500 billion in TES, plus the peso equivalent of the sale of foreign exchange through the system for call options.

Reverse-repo auctions through remunerated deposits not subject to reserve requirements will be closed temporarily as of Monday, October 27.  The Lombard contraction window will be left open.

The Board will continue to monitor the international situation closely, as well as inflation, economic growth and their forecasts.  It reiterated that monetary policy in the future will depend on the new information becomes available.

Bogotá, October 24, 2008

Banco de la República Holds Its Interest Rate Unchanged

At a meeting today, the Board of Directors of Banco de la República agreed, by majority vote, to leave its intervention interest rate unchanged. Consequently, the repo auction base rate will remain at 10%.

Annual consumer inflation was 7.87% by August, which is 35 bp more than the month before. Once again, the rise in food and regulated prices was responsible for the increase, fueled in part by the behavior of international commodity prices.  The latter have dropped recently.

The averages of the core inflation indicators declined slightly for the first time this year.  Non-tradable inflation, excluding food and regulated prices, was down for the second month in a row, having accumulated a reduction of 60 basis points in the past year.  Inflation expectations for the mid-term declined as well, but are still high.

Available information shows the increase in economic activity in Colombia and in most countries is less that expected.  Demand has been weakened by tighter monetary conditions and higher food and fuel prices. In addition, production costs have been boosted by the rise in international prices for raw materials. This lowers supply, while elevating prices.

The international crisis worsened during the past month, especially in the United States. This affected the prices of certain assets in Colombia, particularly the peso exchange rate against the dollar, which has been quite volatile of late.  The uncertainty on international financial markets is expected to continue, and it is unknown exactly how world economic growth and the availability of resources for emerging economies will be affected.

The Board will continue to carefully monitor the international situation, as well as the behavior and forecasts for inflation and growth. It reiterated that monetary policy in the future will depend on whatever new information becomes available.

Bogotá, September 19, 2008

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 unanimously decided to make no change in its intervention interest rate. Accordingly, the repo auction base rate will remain at 10%.

Annual inflation in July was 7.52%, which is 34 bp above the rate in June. The build-up was due primarily to higher food and regulated prices. A number of core inflation indicators also rose during July.

In contrast, expectations of inflation at different horizons, measured on the basis of the domestic government bond market (TES), declined sharply after the decision taken by the Board of Directors at its meeting in July. The recent decline in long-term interest rates is also an important factor. Non-tradable inflation without food and regulated prices registered at 15 bp decline in July.

Loan portfolio growth during August was similar to what it was in July, registering an annual increase of nearly 18%. Real interest rates on lending (non-food CPI deflated) declined slightly, and the peso has depreciated against the dollar in recent weeks.

Growth in the world economy is declining significantly. The slowdown in Europe and Japan has been sharp. The United States economy is expanding at a slightly higher rate than was forecast last month, but is expected to grow less in the coming quarters. There also is evidence of less growth in a number of emerging market economies.

The information on hand reflects more moderate growth in internal demand and output in Colombia as well. Tighter financial conditions and the impact of higher food and fuel prices on real available income have curbed the growth in demand. Supply, in turn, has been negatively affected by higher production costs, which reduce production growth and elevate prices.

Inflation is still on the rise in many countries, and various central banks have raised their interest rates. International prices for oil, food and other commodities fell recently, but are still historically high.

In short, the economy is expected to grow by 3.3% to 5.3% in 2008. Annual inflation is likely to remain high in the months ahead, due to high food and fuel prices. Later on, total inflation and core inflation indicators may decline gradually, as a result of less growth in demand, provided expectations of inflation remain low and wage increases are moderate.

In view of the foregoing, the Board of Directors decided to hold its intervention rate steady. In addition, it will continue to keep a close eye on the international situation, as well as inflation, economic growth and their forecasts. It reiterated that monetary policy in the future will depend on whatever new inflation becomes available.

Banco de la República Raises Its Intervention Rate

At a meeting today, the Board of Directors of Banco de la República decided, by a majority vote, to raise the intervention interest rate by 25 bp.  This will increase the base rate for repo auctions from 9.75% to 10%.

Annual inflation in June was 7.18%, which is 79 bp above the rate in May. The build-up was due to a sharp rise in food and regulated prices.

A number of core inflation indicators also increased during June, as did expectations of inflation.  These indicators continue to exceed the targets.

Moreover, the international context is one of mounting inflation that has prompted many central banks to raise their policy rates. International prices for food and fuel remain high.

The information on hand denotes more moderate growth in internal demand and output. Part of the slowdown is due to the sharp drop in civil works during the first quarter and to supply factors, such as the Cerromatoso strike. By the same token, the increase in food and fuel prices reduces real available income and raises production costs, which means more inflation and less growth in the economy.   The results of a range of industrial and consumer surveys, coupled with the figures released by DANE on commerce, industry and construction, confirm the slowdown in growth anticipated for this year. Given the new figures, the Bank’s technical team expects between 3.3% and 5.3% economic growth in Colombia during 2008.

Lower forecasts for growth this year in Colombia and worldwide would suggest no change in intervention interest rates. However, rising inflation, the outlook for inflation next year, and the importance of anchoring expectations of inflation to a downward trend in inflation indicate the intervention interest rate must be increased.  Low, stable inflation helps to maximize economic growth in the long run.

Accordingly, the Board of Directors raised the Bank’s intervention rate to anchor inflation expectations to the long-term targets and particularly due to the risk of the collateral effects of international food and fuel prices.  The country’s monetary policy seeks to avoid having to adopt more drastic measures in the future in response to price and wage hikes that exceed the targets set by Banco de la República.  

The Board will continue to carefully monitor the international situation, as well as the behavior of inflation and economic growth, and their forecasts. It reiterated that future monetary policy will depend on new information that becomes available.

Bogotá, July 25, 2008

Banco de la República holds its interest rate, modifies the exchange intervention scheme, and replaces the marginal reserve requirement with an average reserve requirement of 10%

At a meeting today, the Board of Directors of Banco de la República decided unanimously to leave its intervention interest rate at 9.75%.

Annual inflation was 6.39% in May. This is 66 basis points more than annual inflation in April. The increase was due primarily to the rise in unprocessed food prices because of weather conditions.  International food prices remained high and have exerted upward pressure on prices in the family market basket, despite sharp peso appreciation.

The Board noted that core inflation indicators rose in May, as did expectations of inflation, most of which are above target.  This confirms that the steep rise in demand in the past needs to be curbed to reduce inflationary pressures and to prevent growth from becoming unsustainable.

Although external conditions remain favorable for economic growth, the indicators available in May suggest the increase in internal demand and output has slowed considerably.  This includes the limited growth in commerce and industry, the sharp deceleration in consumer loans, a lower consumer confidence indicator and the scant increase in energy consumption.  The effect of supply factors on GDP growth in the first quarter of the year was emphasized, such as the brusque drop in construction of civil works, the Cerromatoso strike and the reduced number of working days.

In view of these factors, the Board believes the Bank’s intervention interest rates, at their current level, are doing what is needed to slow the growth in demand and, therefore, considers it prudent to maintain the current stance of monetary policy.  However, if expectations of inflation begin to affect prices and wages, that stance will have to be modified.

The Board decided to step up the accumulation of international reserves throughout the remainder of 2008. To do so, it replaced the current scheme, based on monthly options of US$150 million, with daily purchases of US$20 million through competitive auctions. This reinforces the policy of accumulating international reserves to deal with an eventual deterioration in the international environment.  The measure takes advantage of the fact that the exchange rate is currently below sustainable levels.

The monetary effects of this measure will be offset to keep the inter-bank interest rate close to the intervention interest rates. This will be accomplished by eliminating the marginal reserve requirement as of September and raising the ordinary reserve requirement by 10%, on average (11.5% for checking and savings accounts and 6% for time certificates of deposit).  Moreover, the Bank will open its contraction windows, if necessary.

Bogotá, June 20, 2008

Banco de la Republica makes no change in its interest rates

At a meeting today, the Board of Directors of Banco de la República decided, by a majority vote, to leave its intervention interest rate at 9.75%.

Annual inflation was 5.73% in April, which is 20bp less than the month before. As in March, the decline was due to lower prices for perishable foods.  Regulated price inflation continued to register substantial increases as a result of the indexation mechanisms established for certain public utility rates.  The Board emphasized that inflation and expectations of inflation remain above target, as is the case with various core inflation indicators.

External conditions are still favorable for economic growth in Colombia. Recent weeks have seen a sharp rise in international prices for the country’s leading export products, and exports and foreign direct investment have grown at historically high rates. The improvement in the country’s terms of trade stimulates national revenue. The current account deficit in the balance of payments for 2008 is expected to be less than what was forecast several months back. This will help to make economic growth more sustainable.  

Available figures show that industry and commerce, two sectors that are highly sensitive to internal demand, registered less growth in March than was forecast by Banco de la República. The latest surveys of the business community also suggest growth in demand is down.  However, more information is needed to identify the risks posed by less economic growth this year and in 2009.

The increase in retail loans continued to slow, as was expected in response to the hike in reserve requirements and in Banco de la República’s interest rate. However, credit (especially retail loans) continues to grow at rates above the nominal GDP increase expected for this year.

The Board believes that meeting the long-range target for inflation is crucial to avoiding a period of economic difficulties in the future.  More moderate growth in internal demand and credit reduces inflationary pressure and allows for sustainable economic growth.

The Board will continue to monitor the international situation, as well as inflation and economic growth, specifically their behavior and forecasts. It reiterated that monetary policy in the future will depend on new information that becomes available.

Bogotá, May 23, 2008

Banco de la República decides not to change its benchmark rate

In a meeting today, the Board of Directors of Banco de la República decided to leave its benchmark interest rate at 9.75%.

Annual inflation in March was 5.93%. This is 42 bp less than in April, essentially because of lower food prices. However, inflation in regulated prices increased, as did several core inflation indicators.

Available figures show the monetary-policy measures adopted in recent months have achieved the desired results.   Loan growth has slowed, particularly in the case of commercial and retail loans.  The various indicators of inflation expectations are still high, but have declined.

The Board underscored the continued positive momentum in the Colombian economy. The first-quarter average for the consumer confidence indicator remained high, and merchandise exports in the early months of the year increased at rates above those registered at the end of 2007.   The sharp rise in imports of capital goods suggests that private investment remains strong.

The external context continues to be characterized by the uncertainty surrounding the economic situation in the United States and how it might affect the world economy.  Yet, so far, export performance, terms of trade and foreign direct investment reflect an external environment that is favorable to Colombia’s economic growth.

In addition, the Board decided to reinforce control over capital coming into the country by requiring a deposit on import funding beyond six months.  The deposit also apples to cases where residents are indirect recipients of resources from foreign loans used to set up companies outside the country.

The Board will continue to monitor the international situation closely, and will keep an eye on inflation and growth trends and forecasts.  The members reiterated that the course of monetary policy in the future will be determined by new information, as it becomes available.

Bogotá, April 25, 2008

Banco de la República Holds its Benchmark Rate

At a meeting today, the Board of Directors of Banco de la República agreed to leave its benchmark interest rate at 9.75%.

Inflation in February (1.5%) went beyond the Bank’s forecasts and the market’s expectations, primarily due to higher food prices.

The figures on hand confirm the monetary-policy measures adopted in recent months have achieved their purpose.  The growth in credit has slowed, particularly with respect to commercial and consumer loans.

It was emphasized that the Colombian economy continues to grow, as indicated by the major rise in exports, in indicators of installed capacity, and in shipment-balance and confidence indexes in the productive sector.

The international context during the past month was characterized by serious deterioration in the United States economy and its financial system. This has sparked uncertainty about the extent of the recession in that country, how long it will last, and the impact it might have on the world economy.  Added to this is the possibility of future problems Colombia might have with its major trading partners.

Despite continued inflationary pressures, the Board believes the worsening external context warrants waiting until more inflation is available before adopting additional monetary policy measures.

Finally, given the uncertainty derived from the current state of the world economy, the Board decided foreign exchange may be purchased through put-option auctions held monthly for US$150 million. This existing mechanism to accumulate reserves allows US$1,800 million to be purchased in one year.

The Board will continue to carefully monitor the international situation and the forecasts for inflation and growth. It reiterated that monetary policy in the future will depend on the new information that becomes available.

Bogotá, March 28, 2008

Banco de la República raises its benchmark interest rate by 25 basis points

At a meeting today, the Board of Directors of Banco del Banco de la República decided, by a majority vote, to raise its benchmark interest rates by 25 basis points. Consequently, the base rate for repo auctions will go from 9.5% to 9.75%.

Inflation was 1.06% in January, exceeding the Bank’s forecasts and the market’s expectations.  This outcome is explained fundamentally by food prices.  Non-food inflation was up slightly in January, reaching the top of the target range (4.5%). Closing out the month at 6%, annual inflation increased for the fourth month in a row, exceeding the inflation target for 2008.

In addition to analyzing the origin of current inflation, the Board also identified the factors that pose a risk to future inflation.  Although growth in aggregate demand has slowed, thanks to the monetary policy decisions adopted in recent months, the available figures show it remains strong.  This is suggested, for example, by the latest consumer confidence surveys and the momentum in exports.  Therefore, under the present conditions, the economy is likely to grow by about 5% in 2008.

The various assessments of inflation expectations, based on surveys and the TES market, show expectations for inflation one year or more down the road have increased in recent months.   This could make it more costly to reduce inflation in the future, having a negative impact on growth and employment.

The Board also analyzed the international economic situation. Although there is evidence of a slowdown in the United States and Europe, it concluded there are, as yet, no signs of contagion in the Colombian economy. Terms of trade are at historically high levels, the flow of trade remains strong, and international investor confidence in the Colombian economy continues to be solid, as demonstrated by the sharp rise in foreign direct investment in Colombia so far this year, primarily in oil, coal, commerce and communications.  In fact, it is the momentum in foreign direct investment, not the short-term capital flows induced by differences in interest rates between Colombia and other countries, that explains the net capital inflows in the balance of payments during that period.

The Board will continue to monitor the international situation carefully, and will keep an eye on inflation and growth trends and forecasts. It reiterated that the course of monetary policy in the future will be determined by new information, as it becomes available.

Bogotá, February 22, 2008

Banco de la República Transfers $1.4 Trillion Pesos in Profits to the National Government

At a meeting today, the Board of Directors approved the Banco la República’s financial statements for 2007.    Pursuant to Law 31/1992, the Bank will transfer Col$1.4 trillion pesos in profits to the national government.

Most of the profits came from the return on international reserves.  As to outlays, the Bank continued its policy to rationalize expenses for personnel and operations. The 2007 financial statements were authorized by the National Superintendent of Financial Affairs. They were audited by an international firm and by the Bank’s General Auditor.

Bogotá, February 22, 2008

Banco de la República holds its benchmark interest rate

The Board of Directors of Banco de la República decided unanimously to leave its benchmark interest rate at 9.50%.

The Board emphasized the difficult situation in the international environment and the uncertainty surrounding forecasts for growth in the United States and the world economy. Less growth could affect Colombia’s economic performance, which will depend on the extent of the slowdown in those countries and its impact on exports, commodity prices, capital flows and remittances, among other factors.

Inflation at the end of 2007 (5.69%) was above target, mainly due to the increase in food and regulated prices. The Board reiterated its commitment to adopting the policy decisions that are required to maintain inflation within the agreed range, which is 3.5% to 4.5%, and will monitor inflation pressures originating outside the country, particularly with food and fuel.

Available figures show the Colombian economy is still dynamic and will register around 7% growth in 2007. A slowdown is expected in 2008, the extent of which will depend on the international situation. Even so, technical studies done by the Bank show GDP growth will remain vigorous in 2008, near the average for the last five years.

The Board will continue to keep a watchful eye on the international situation, inflation forecasts and figures, and economic growth. It reiterated that monetary policy in the future will depend on new information and its impact on inflation forecasts in light of the targets.

Bogotá, Colombia January 25, 2008

Banco de la República holds its benchmark interest rate

At a meeting today, the Board of Directors of Banco de la República decided to leave its benchmark interest rate at 9.50%.

Annual inflation went from 5.16% in October to 5.41% in November, primarily due to food prices.  Added to this were the increases in regulated prices and those for tradable goods. Inflation in non-tradable goods, excluding food and regulated prices, continued to decline and was 5.27%.

The figures show that economic growth remains positive and the country’s monetary policy continues to have an effect in terms of curbing some of the growth in credit.  However, as a result of added uncertainty in international markets, estimates of economic growth for our major trading partners were revised downward. 
 
The Board will continue to carefully monitor the impact international economic difficulties could have on growth.  It also will keep an eye on the trend in inflation pressure originating outside the country, particularly pressure exerted by international food and fuel prices.

Finally, it reiterated that monetary policy in the future will depend on new information and how it affects projected inflation in light of the targets.

Bogotá, December 14, 2007

Inflation targeted at 4% for 2008 and the intervention interest rate at 9.50%

At a meeting today, the Board of Directors of Banco de la República set the inflation target range for 2008 at 3.5% to 4.5%, with 4% as the specific target for legal effects. This decision is consistent with the announcement in November 2006.

It also decided the midpoint for target inflation in 2009 will be between 3% and 3.5%, which is within the long-term range for inflation (2% - 4%).

The Board believes gradual and careful management of the disinflation process is coherent with Banco de la República’s constitutional mandate to preserve the buying power of domestic currency and to contribute to sustained growth in output and employment.  It also emphasized how important it is, for the sake of good economic performance, that economic agents keep these targets in mind with respect to future price and wage adjustments.  

Moreover, in an environment characterized by sharp growth in aggregate demand and credit, high use of installed capacity, and an international context marked by a moderate slowdown in the world economy, the Board unanimously decided that an additional hike in the intervention interest rates would be necessary to achieve these targets.   Consequently, it raised the Bank’s intervention rate by 25 basis points, from 9.25% to 9.50%.

Based on available data, the Board believes 9.50% interest is close to a level consistent with meeting the targets announced for inflation.  This rate also is regarded as coherent with maximum sustainable economic growth.

Finally, the Board reiterated that monetary policy in the future will depend on new data and its impact on projected inflation.

Bogotá, November 23, 2007

Banco de la República Holds Its Intervention Interest Rates

At a meeting today, the Board of Directors of Banco de la República decided not to change its intervention interest rates. As a result, the base rate for repo auctions will remain at 9.25%.

Inflation stayed on a downward trend throughout September, primarily because of the drop in food inflation. The core inflation indicators also declined in terms of their annual rate.  However, non-tradable inflation, excluding food and regulated prices, still shows no sign of a descending trend.

Available figures indicate growth in aggregate demand in the economy remains strong. In contrast, the uncertainty on international financial markets continues and, as a result, the estimates for economic growth in 2008 with respect to Colombia’s major trading partners have been revised downward.

Accordingly, the Board of Director believes it is appropriate to prolong the pause in intervention interest rate hikes.  The risks mentioned by the Board at its last meeting with respect to the forecasts for inflation and economic growth still exist.

The Board will continue to conduct a careful review of economic developments in and outside Colombia, and their impact on inflation pressures and economic activity.
  
Bogotá, October 26, 2007

Banco de la República Raises its Intervention Interest Rates by 25 Basis Points

At a meeting today, the Board of Directors raised Banco de la República’s intervention interest rates by 25 basis points. The base rate for repo auctions will go from 8.75% a 9% as a result.

There was no increase in consumer inflation during May, and it is expected to decline throughout the second half of the year.  Nevertheless, the annual rise in prices still exceeds the targets set by the Bank, and available information suggests that aggregate demand continues to expand quickly, even more than earlier forecasts predicted.

The Board reiterated its commitment to maintaining a monetary policy that is consistent with the inflation target for 2007 (in 3.5% - 4.5% range), and has ensured convergence towards the long-term target for inflation (3% ± 1 percentage point). This policy helps to keep economic growth on a sustainable course.

It also imposed a uniform required reserve ratio for checking and savings accounts, given the similarity of these financial assets in terms of liquidity.    The ordinary ratio required for such deposits was unified at 8.3 %, and the marginal ratio, at 27%. The required marginal reserve ratio will continue to be calculated pursuant to the percentage at May 7, 2007, and credit institutions will have two “bi-weekly reserve adjustment” periods. The following table shows a comparison of the reserve requirements before and after the Board’s decision.

Bogotá, June 15, 2007 (5:20 p.m.)

Banco de la República Intervenes in the Foreign Exchange Market

Banco de la República reported that US$360m in put options were exercised during May 2007 to control volatility.  That same month, the Bank exercised no discretional intervention in the exchange market and made no final TES B purchases or sales. The Bank was holding $ 1.5 trillion pesos in TES B at May 31, 2007.

Bogotá, June 12, 2007 (4:25 p.m.)

Banco de la República Raises its Intervention Interest Rates by 25 Basis Points

At a meeting today, the Board of Directors raised Banco de la República’s intervention interest rates by 25 basis points. As a result, the base rate for repo auctions will increase from 8.50% to 8.75%.

This decision was taken in view of the forecasts for inflation and the results of the CPI in April, which rose more than expected.  Furthermore, demand and credit continue to grow at a fast pace.

The Board said it will continue to adopt measures that are consistent with the target range for inflation in 2007 (3.5%-4.5%) and will pursue efforts to guarantee convergence towards the long-term target for inflation (3% ± 1 percentage point). This policy helps to keep economic growth on a sustainable course.

The Board also expressed its confidence that the measures adopted on May 6 will have the desired effect in terms of supporting the stance of the country’s monetary policy.

Bogotá, May 18, 2007 (1:57 p.m.)

Highlights of “The Current Situation and Outlook for the Colombian Economy”: A Presentation by Mr. José Darío Uribe, Governor of Banco de la República

Inflation

The Governor of Banco de la República, Mr. José Darío Uribe, indicated the recent increase in inflation (6.26% at April 2007) is the result of factors associated with both supply and demand. The supply factors refer to the effects of El Niño weather on food production and the increase in prices for certain regulated goods and services.  The demand factors are associated with the sharp rise in domestic spending, the demand for Colombian products in Venezuela, and increased world demand for agricultural products that can be used to produce alternative sources of energy as a substitute for oil.

The inflationary pressures brought to bear on food prices as a result of El Niño weather are temporary and should disappear during the second half of the year.  However, inflationary pressure associated with international prices for oil and bio-fuels, and the pressure originating with exports to Venezuela, are likely to continue throughout the year.  Inflation in regulated goods is expected to decline during the second half of 2007.

Growth

On the supply side, growth during 2006 (6.8%) originated in numerous sectors of the economy, particularly industry, construction commerce and transport.  Investment and household consumption were the major components of demand. These aspects of economic growth allow for optimism about its continuation, given the broad production basis where it originates and the increase in the economy’s potential for output.

In fact, domestic demand was up by 9.9% in 2006, fueled largely by investment in machinery and equipment.  The growth in household consumption accelerated from 5.5 to 8.0% during the second half of the year, while the GDP growth forecasts for 2007 are between 5% and 6.5%, with an increase in domestic demand of nearly 8%.

Interest Rates

Given the acceleration in aggregate demand and credit, the Board of Directors has raised Banco de la República’s intervention interest rates ten times between April 2006 and April 2007, by 25 basis points on each occasion.  The most recent hike, on April 30, placed the base rate for repo auctions at 8.50%. This policy helps to ensure compliance with the target for inflation in 2007 and convergence towards the long-term target, which is in the 2%-to-4% range.  This elimination of the monetary stimulus does not affect the Colombian economy’s potential for growth. Rather, it contributes to the continuity and sustainability of that growth.

The Exchange Rate

At the start of the year, the Board of Directors of Banco de la República voiced its commitment to exchange market intervention aimed at contributing to macroeconomic stability and ensuring a certain balance in GDP growth between the sectors producing tradable and non-tradable goods and services. In pursuit of this policy, the Bank purchased US$ 4,527.4 million on the foreign exchange market during the first four months of the year.

The monetary effects of this intervention are being offset by the Bank, so as not to jeopardize the inflation target.

Recent Measures

The Board of Directors adopted a series of measures on May 6, 2007 that reflect its commitment to making sure inflation targets are met.   For example, it imposed a marginal reserve ratio on the amount of Colombian currency deposited by financial institutions. The idea is to reduce growth in the consumer loan portfolio in the financial sector.  The Board also decided to require an external debt deposit equal to 40% of the disbursement value at six months, so as to even up domestic and foreign interest rates on short-term external credit arrangements. Finally, a limit equal to 500% of technical capital was placed on the leveraged portion of derivative operations by exchange market intermediaries. In this case, the idea is to reign in the risk associated with those operations.

Bogotá, May 11, 2007 (4:00 p.m.)

Banco de la República Intervenes in the Exchange Market

Banco de la República reported US$666.2 million in discretionary purchases of foreign currency on the exchange market in April 2007, bringing the total so far this year to US$4,527.4 million.  It made no final purchases or sales of TES B during that month, and was holding Co$ 1.45 trillion in TES B at April 30, 2007.

Bogotá, May 7, 2007 (5:22 p.m.)

At a meeting today, the Board of Directors of Banco de la República Decided on the Following:

1.      A marginal reserve ratio was imposed on each type of local currency liability in amounts that exceed the level registered on May 7. The following percentages apply:

a.      27% for checking accounts and other checkable deposits

b.      12.5% for savings accounts and similar deposits

c.      5% for certificates of deposit maturing in less than 18 months and similar time deposits.

This marginal reserve earns no interest.

The external debt deposit stipulated in External Resolution 08/ 2000 was reinstated. It will come to 40% of the disbursed amount, calculated at the representative market rate of exchange on the date the loan is furnished. The deposit will be held for six months.

The purpose is to facilitate monetary management in the midst of an economic situation characterized by a sharp increase in credit and aggregate demand that could jeopardize the inflation target and the stability of the financial system.

The leveraged position of derivative operations by foreign exchange market intermediaries was limited to 500% of their technical capital.  In this case, the goal is to reduce the risk to foreign exchange market intermediaries by restricting their leverage possibilities to hedge positions.    

Bogotá, May 7, 2007 (8:15 a.m.)

Banco de la República Will Manage the Bank Reference Indicator (BRI)

At a meeting on April 30, the Board of Directors agreed to manage the bank reference indicator (BRI), as requested by the Colombian Banking Association (Asobancaria). The design of this indicator reflects the reference interest rate representative of liquidity conditions on the money market.

The BRI is a private-sector initiative. It is being supported by Banco de la República as an integral part of efforts to develop the money market in Colombia and to strengthen the mechanisms for monetary policy pass-through.

It was designed by a work group that includes Asobancaria, several banks representing the members of Asobancaria, the Superintendent of Financial Institutions, the Ministry of Credit and Public Finance, and Banco de la República.

By providing the financial system and the general economy with a reference on short-term liquidity conditions, the BRI will bolster development of both the money market and the market for financial derivatives. Derivatives are an important tool for hedging against the risks confronting agents in the Colombian economy.

Banco de la República is scheduled to begin publishing the BRI in the second half of 2007.

Bogotá, May 4, 2007 (10:10 a.m.)

Banco de la República Rules a 25 Basis-point Hike in its Intervention Interest Rates.

The Board of Directors today ruled a 25 bp hike in Banco de la República’s intervention interest rates. As a result, the base rate for repo auctions will go from 8.25% to 8.50%.

According to the Board, the continued growth in demand and credit suggest the need for additional rate hikes.  Food prices, which rose sharply during the first quarter, are expected to decline during the remainder of the year, particularly in the second half.

The Board said it is confident the inflation target for 2007 will be met (in the 3.5% - 4.5% range) and ratified its commitment to adopting the measures necessary to ensure convergence toward the long-term target for inflation (3% ± 1 percentage point). This policy helps to keep economic growth on a sustainable course.

Banco de la República plans to continue its discretionary exchange market intervention.  Moreover,  so as not to jeopardize the inflation target, it will work in coordination with the national government to offset the monetary impact of that intervention.

Bogotá, April 30, 2007 (4:40 p.m.)

Banco de la República Intervenes in the Exchange Market

Banco de la República purchased US$1,836.7 million in foreign currency on the exchange market in March 2007, through discretional intervention. This amounts to a total of US$3,861.2 million so far this year.  Its net sales of TES that same month came to Col$596 billion pesos.  The Bank was still holding Col$1.5 trillion pesos in TES at March 31, 2007.

Bogotá, April 9, 2007 (5:34 p.m.)

The Board of Directors of Banco de la República Reports to Congress

Consumer inflation was 4.5% at the end of the year. This is the middle of the target range set by the Board of Directors and less than inflation in December 2005 (4.9%), rounding out three consecutive years of compliance with the inflation targets set by the Bank.

Lower inflation in 2006 was accompanied by a rapid increase in output.  The Colombian economy grew by 6.8% in 2006, a level not seen since 1978. It makes Colombia one of the fastest growing countries in Latin America.

The Board of Directors has raised interest rates gradually to reduce the monetary incentive, which the economy no longer requires.  In doing so, it hopes to guarantee maximum economic growth consistent with the targets for inflation.  

The favorable economic situation, marked by rapid growth and lower inflation, has been accompanied by steady appreciation of the peso, largely because foreign and national businessmen are more confident about investing in the country.  During the first quarter of 2007, with the peso under growing pressure to appreciate, the Bank intervened extensively in the exchange market, purchasing US$2,024.5 million in foreign currency between January and February.

Consumer inflation was 4.5% in December 2006. This is less than in 2005 (4.9%) and within the target range for the year, which the Board of Directors has set at 4% to 5%.  It also rounds out three consecutive years of strict compliance with the inflation targets. The first months of 2007 witnessed an upward trend in annual inflation to 5.25% in February.  This is explained, in part, by high food and regulated prices, which are expected to decline during the second half of the year.

In the case of non-tradables, the sharp increase in demand could spell a continuation of recent inflationary pressure. Tradables, however, are expected to be relatively stable, with 2.0% probable inflation.

The growth in supply witnessed during 2006 originated in a number of economic sectors, mainly industry, construction, commerce and transport.  The components that contributed the most to demand were investment and household consumption.  These aspects make the prospect of continued growth seem likely, given the broad productive base where it originates and the increase in potential economic output.  Moreover, the momentum in consumption reflects growing confidence, coupled with the expectation that this component of demand will continue to grow in the future.

With the acceleration in aggregate demand and the likelihood that it could outpace the economy’s production capacity, the Board of Directors raised the Bank’s intervention interest rates nine times between April 2006 and March 2007.  On each occasion, the hike was 25 basis points. With the latest increase, on March 23, the base rate for repo auctions went to 8.25%. This policy is aimed at keeping inflation on target for 2007 and continuing its convergence towards the long-term target, which is between 2% and 4%.

In addition to a favorable economic environment marked by fast growth and falling inflation, the country has seen the peso appreciate gradually.  This is partly the result of growing confidence among foreign and national businessmen with respect to investing in Colombia. High prices for the country’s leading exports, imbalances in the U.S. economy, and surplus liquidity on international markets are factors as well.  The Bank has used sterilized exchange market interventions to curb the trend towards appreciation.

Reducing the internal risks that can stem from excessive growth in demand with respect to the country’s production capacity is indispensable to sustained growth.  If this is not done in time, inflationary pressures can emerge, along with a current account deficit that could become unsustainable. The interest rate hikes ruled by the Board of Directors help to control this situation by slowing the growth in spending.  For the same reason, it is important to have a policy of fiscal restraint that is consistent with monetary policy, particularly fiscal restraint that lends stability to economic growth and reduces pressure on the peso to appreciate.

On the external front, the risks could come from negative shocks to terms of trade or capital markets. The  country has accumulated considerable reserves; these are a kind of insurance that protects the economy against the negative effects that could originate with such shocks.

In terms of its financial situation, Banco de la República reported Col$1,624 billion pesos (b) in profits for 2006, with Col$2,730 b in income and Col$1,106 b in outlays.  Profits were up by Col$1,299 b compared to 2005, thanks to an increase of Col $1,556 b in earnings.  Profits for 2007 are projected at Col$1,288 b. This is Col$335.9 b less than in 2006, primarily because of less income from returns on international reserves and more outlays to cover interest paid on the reserve ratio held in deposit accounts and on funds deposited by the national government.

Bogotá, March 30, 2007 (11:21 a.m.)

Banco de la República Activates Interest-bearing Deposits as a Monetary Contraction Tool

Banco de la República, pursuant to a decision reached earlier by its Board of Directors, announces it will continue its active and discretional intervention in the exchange market.  The monetary expansion resulting from that intervention is offset by the Bank to keep short-term interest rates at levels regarded by the Board as consistent with the targets for inflation.  One of the contraction tools available for that purpose, among others, are interest-bearing deposits that do not constitute reserves held by the Bank on open-market operations. These interest-bearing deposits were authorized by the Board of Directors on December 17, 2004.

The Monetary Intervention and Exchange Committee, as instructed by the Board of Directors, is working to implement this contraction tool. It will be activated on Monday, April 2, 2007 under the following terms:

Banco de la República will open auctions for interest-bearing non-reserve deposits at 7 and 14 days.

The amounts of these auctions will be defined in a manner intended to keep the market’s short-term interest rates in line with the Bank’s intervention interest rate. The amounts in question will be announced in the auction call.

The base interest rate for the auctions will be equivalent to the one-day repo rate, minus 10 basis points, as instructed by the Board of Directors on June 2, 2006. The Bank’s repo rate is now 8.5%, and the base rate for the interest-bearing non-reserve deposit auctions is 8.15%.

In addition, unlimited deposit-taking at seven days in the form of interest-bearing deposits that do not constitute reserves held by the Bank will be authorized at a Lombard contraction rate equivalent to the base rate for the interest-bearing deposit auction, minus 100 basis points.  Today, the Lombard contraction rate is 7.15%.

The Bank is allowed to conduct monetary contraction operations through other instruments as well, such as final TES sales, government deposits with the Bank, and the adjustment in repo quotas.  

The Bank will continue to use these measures to offset the monetary impact of exchange market intervention, so as not to jeopardize the inflation target set by its Board of Directors.

Bogotá, March 30 de 2007 (7:43 a.m.)

Banco de la República Raises its Intervention Interest Rates by 25 Basis Points

At a meeting today, the Board of Directors raised Banco de la República’s intervention interest rates by 25 bp. The repo auction rate will increase from 8% to 8.25% as a result.

Growth in demand and credit remains high.  Coupled with the forecasts for inflation and the way core inflation indicators and the prices of certain non-tradable goods and services have behaved, this seems to suggest it is advisable to raise interest rates.

The Board expressed confidence that the inflation target for 2007 will be met (3.5% - 4.5% range) and ratified its commitment to adopting the measures necessary to guarantee convergence towards the long-term target for inflation (3% ± 1 percentage point). This policy helps to keep economic growth on a sustainable course.

Banco de la República plans to continue its discretionary exchange market intervention and will continue, in coordination with the national government, to offset the monetary impact of that intervention, so as not to jeopardize the inflation target.

Bogotá, March 23, 2007 (3:22 p.m.)

Banco de la República Intervenes in the Exchange Market

Banco de la República purchased US$1,022.9 million in foreign currency on the exchange market in February 2007, through discretional intervention, bringing the total so far this year to US$2,024.5 million.  That same month, it made no final purchases or sales of TES B, and was holding Col$2.2 trillion pesos in TES B at February 28, 2007..

Bogotá, March 12, 2007 (3:34 p.m.)

Consolidated Public Sector Balance for 2006

The balance for the consolidated public sector (CPS), estimated by the Economic Studies Divisions at Banco de la República according to sources of financing, shows a deficit equal to 0.9% of GDP for 2006. In absolute terms, the figures for the same period show a Col$2,707.5 billion deficit (0.9% of GDP) for the CPS.

By sectors, the CPS balance is based on the following figures:

Bogotá, March 2, 2007 (5:35 p.m.)

Banco de la República Raises its Intervention Interest Rates by 25 Basis Points

At a meeting today, the Board of Directors raised Banco de la República’s intervention interest rates by 25 bp. This implies an increase from 7.75% to 8% in the base rate for repo auctions.

A look at the state of the economy and its prospects suggest the accelerated growth in aggregate demand and credit will continue.    Coupled with the core inflation indicators and the performance of prices for certain non-tradable goods and services, this seems to suggest the advisability of continuing to raise interest rates.

The Board ratified its commitment to adopt the measures necessary to ensure convergence toward the long-term target for inflation (3% ± 1 percentage point).

Banco de la República plans to continue its discretionary exchange market intervention and will continue, in coordination with the national government, to offset the monetary impact of that intervention, so as not to jeopardize the inflation target.

Bogotá, February 23, 2007 (12:54 p.m.)

Banco de la República Transfers $1.18 Trillion Pesos in Profits to the National Government

At a meeting today, the Board of Directors approved Banco de la República’s financial statements for 2006.  Pursuant to Law 31/1992, it will transfer Col$1.18 trillion pesos in profits to the national government.  These funds will be turned over in US dollars.

Most of the Bank’s profits for 2006 originated with returns on international reserves and the increased value of investments in TES, which is uses to implement monetary policy.  The highlights include the  limited increase between 2005 and 2006 in personnel expenses (5.8%) and general expenses (4.4%).  In real terms, personnel and general expenses declined by 13.5% and 28.2%, respectively, between 2005 and 2006.  The Bank has cut its staff by 15.6% in the last six years. All of these accomplishments are the result of a continuing policy to rationalize its personnel and operating expenses.

The financial statements were authorized by the Superintendent of Financial Institutions. They are audited internationally and by the General Auditor of Banco de la República.

Bogotá, February 23, 2007 (12:54 p.m.)

Banco de la República Intervenes in the Exchange Market

Banco de la República announced it purchased US$ 1,001.6 million in foreign currency on the exchange market in January 2007, through discretional intervention. It reported no final TES B purchases or sales during that month.

Highlights of “A Report on the Colombian Economy and Rendering of Accounts for 2006”: A Presentation by Mr. José Darío Uribe, Governor of Banco de la República

1. Important Developments in 2006

Mr. José Darío Uribe highlighted three important developments with respect to the Colombian economy during 2006:

a.      Annual consumer inflation was 4.48% at December, which is on target with the objective set by the Board of Directors of Banco de la República.

b.      GDP growth in the first three quarters of 2006 (6.4%) surpassed all expectations.

c.      The Board of Directors reduce the monetary stimulus by raising intervention interest rates in April, June, August, September, October and December 2006 and in January 2007.  On each occasion, the increase was 25 bp.  As a result of the latest hike, the repo auction base rate was 7.75%.

2.  Questions and Answers

Why raise interest rates?  The answer rests with the recent, anticipated trend in output and inflation.  The increase in economic growth was concentrated in private GDP, which rose by 8.7%. The growth in domestic demand (9.7%) was fueled mainly by the acceleration in household consumption and the continued healthy increase in investments, particularly in machinery and equipment, and construction and buildings. Total exports also continued to perform well and accelerated in real terms. The coming quarters are expected to see no significant slowdown in the growth in aggregate demand, and GDP growth in the 4.4%-to-6.6% range is forecast for 2007.

The reduction witnessed at the end of the third quarter of 2006 with respect to non-tradable inflation, excluding food items and regulated prices, did an about-face and ended the year at  4.75%, which is more than in 2005 (4.57%). Also, the average for the core inflation indicators rose from 4.25% in September to 4.51% in December.

According to the Governor, the economy no longer needs the monetary stimulus implicit in historically low interest rates.  The idea behind the interest rate hikes is to achieve maximum growth consistent with inflation that is converging toward the long-term target (between 2% and 4%).

Why the rate hikes as of April 2006? They were necessary because it takes considerable time for a change in interest rates to affect demand in the economy (12 to 24 months). Decisions on whether or not to modify interest rates must be based on how inflationary pressures will develop one or two years in the future.  

If interest rates are not raised in advance, and inflation accelerates, the Central Bank will be obliged to sharply increase rates later.  However, by raising them ahead of time, the overall increase will tend to be less and the economy will be more stable.

3. The Announcement in January

At a meeting on January 26, 2007, the Board of Directors of Banco de la República announced a 25 basis point increase in intervention interest rates and large-scale intervention in the foreign exchange market “to curb the temporary pressure derived from the sale of assets in the public sector”.

Are these measures contradictory? The answer is no, because monetary expansion created by the purchase of dollars is offset to keep short-term interest rates at a level that is compatible with the inflation target. Moreover, the concentration of monetization is a temporary and identifiable phenomenon. Once it occurs, both the exchange rate and expectations about its future performance should return to normal.

The decision to continue the monetary normalization process ratifies the Board’s commitment to adopt the measures that are necessary to ensure convergence toward the long-term target for inflation.  This gradual elimination of monetary stimulus does not affect the Colombian economy’s capacity for growth in terms of its potential.  In fact, it contributes to the continuity and stability of that growth.

Inflation Report – December 2006

Bogotá, February 9, 2007 (1:45 p.m.)

José Darío Uribe, Central Banker of the Year, According to The Banker, a British Financial Magazine

The Editorial Board of The Banker, a British magazine belonging to the The Financial Times Group, named José Dario Uribe as the American continent’s “Central Banker of the Year”.   An annual event, this designation was made public in the January issue of The Banker, which began circulating last week at the World Economic Forum in Davos.

In talking about the reasons why Banco de la República’s Governor was chosen for this honor, The Banker stressed the steady decline in inflation in Colombia and the adoption, some years ago, of an inflation-targeting strategy.  According to the magazine, Banco de la República “has not just reduced inflation, but has consolidated its independence by confirming that its main objective is to keep inflation low.”

The article mentions strict enforcement of the inflation target for 2006 (4.48%, a rate very close to the mid-point of the target range for that year), and indicates the target was achieved in the context of an economy that is growing above 6%.  In quoting the Governor, the magazine highlighted that  “ the inflation targets have become increasingly credible…Greater levels of transparency and accountability, coupled with an effective communication strategy,  have allowed for a better understanding of monetary policy among market agents. This, in turn, has contributed to its effectiveness…With the success on these fronts, we hope to bolster growing public support for monetary policy decisions and to broaden the credibility and independence of the Central Bank.”

Bogotá, January 29, 2007 (4:30 p.m.)

Banco de la República Raises Its Intervention Interest Rates by 25 Basis Points

At a meeting today, the Board of Directors raised Banco de la República’s intervention interest rates by 25 basis points.  The base rate for repo auctions will increase from 7.50% to 7.75% as a result.

The Board emphasized the fact that the inflation target for 2006 has been met (4.48%) and expressed confidence that the 2007 target will be met as well (in the 3.5% to 4.5% range). The Board also ratified its commitment to adopting the measures that are necessary to guarantee convergence towards the long-term target for inflation (3% ± 1 percentage points).

A look at the state of the economy and its prospects suggest that growth in aggregate demand will continue to accelerate, with sizeable increases in private consumption, investment and credit.  Coupled with the trend in core inflation indicators and the prices for certain non-tradable goods and services, this suggests the normalization process of the monetary policy should continue.

The Board decided to intervene in the foreign exchange market in a major way, to curb the temporary pressure derived from the sale of assets belonging to the public sector.  This measure can be implemented without jeopardizing the inflation target, thanks to coordination between the Central Bank and the Colombian government.

Bogotá, January 26, 2007 (1:08 p.m.).

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