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

Publication Date:

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.

Bogotá