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