BANREP Leaves the Benchmark Interest Rate Unaltered and Continues he International Reserve Purchase Program

Complete tittle: The Banco de la Republica Leaves the Benchmark Interest Rate Unaltered and Continues he International Reserve Purchase Program

In their meeting today, the Board of Directors of the Banco de la Republica decided to leave the benchmark interest rate at 3.25%. In making this decision, the Board took the following relevant aspects into account:

• The recent data suggest that the industrialized economies are growing at a rate that is similar to what was expected a month ago.  The United States is growing at a slow rate, Europe continues to contract, and Japan seems to be starting to react to the vigorous monetary stimulus measures. However, several of the emerging country economies in Asia and Latin America have slowed down more than expected.
• The slower growth in the emerging economies leads one to anticipate that the demand for Colombian exports could be slightly less than was previously estimated and terms of trade lower than the average seen in 2012.
• The Colombian peso, like the currency of several Latin American countries, has depreciated with respect to the dollar.  This could be associated with the reduction in the international prices for the commodities that these countries export, the slowdown in their economic growth, and the conjectures about the possibility that the Federal Reserve of the United States may begin to reduce its asset purchase program.  The Banco de la Republica’s intervention in the local foreign exchange market as well as the measures adopted by the government have reinforced the tendency of the peso to depreciate. 
• The indicators that are available so far suggest that growth in the second quarter will be higher than that in the first.  In April, consumer confidence improved substantially as did the indicators of business expectation in industry, commerce, and consumption of electricity.  In addition, the reductions in the benchmark interest rate are still being transmitted to the nominal and real interest rates and, overall, credit halted its slowdown.
• In general, Colombian economic expansion is expected to rise over the course of the year to the degree in which aggregate expenditure reacts to the prior monetary policy measures and the programs announced by the national government last month.  The Bank’s technical team holds to their forecast that the GDP will grow 3.0% to 5.0% in 2013 with 4.3% being the most probable rate.
• In April, annual inflation (2.02%) surged.  The measurements of core inflation did not show significant changes.  Both the average of those measurements and the inflation expectations are at or below the target (3%).

In summary, the growth of the Colombian economy was below 3% in the first quarter, but the monetary policy and fiscal actions that have been taken so far are expected to contribute to getting the output to go to its potential level over the course of the year.  Furthermore, there is a high probability that inflation will culminate within the target range.  In this context and with the evaluation of the risk balance, the Board of Directors decided it would be advisable to keep the benchmark interest rate at 3.25%.

They likewise decided to continue the daily auction program for the purchase of international reserves and will amass at least US$2.5 billion between June and September of this year.  Among other factors, the decision takes into account the recent change in the exchange rate and the existence of an expansionary monetary posture.

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