Banco de la Republica Maintains the Benchmark Interest Rate

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

The global economy is expanding at a moderate rate and its short term performance has changed little compared to what was registered in previous quarters.  Based on the indicators for the third quarter, the Euro zone is experiencing an incipient recovery.  However, the growth of the United States may have suffered as a result of both the partial shutdown of the federal government and the greater uncertainty.  The group of emerging economies is expanding at a slower pace although the GDP growth in China was higher than what had been expected by the market.

- In addition, the probability that the FED will begin to reduce its monthly asset purchases this year has declined.  This partly reversed the increases in the long term interest rates that have been registered since May.  It also produced a decrease in the country risk indicators in Latin America and a slight appreciation in their currencies.

- The international price of petroleum and some raw materials, in turn, imported by Colombia registered drops.

- In Colombia, the available data for the third quarter suggest that economic activity, driven by investment, is expanding at a faster rate than in the first half of the year.  Consumption may be growing at a rate similar to that of the first half of the year.  With respect to supply, the construction sector is probably the main source of growth, followed by agriculture, mining and trade.  For all of 2013, the technical team projects a growth rate of between 3.5% and 4.5%.

- Bank lending is growing at stable rates that are higher than those for the nominal GDP.  In real terms, the interest rates for the different types of credit are below their historical averages (except in the case of credit cards) and are driving the economic growth.

- In September, the annual inflation (2.27%) remained stable compared to that for the previous month.  The same was registered in the case of the average for core inflation.  The analysts’ inflation expectations for a twelve-month period and those calculated based on public debt securities for longer maturities are consistent with the long-term inflation target.

In summary, economic growth in 2013 is expected to be similar to that registered in the previous year even though the downward risks are not insignificant and may have increased recently.  Inflation is still in the lower half of the target range and expectations for it remain anchored to the long-term target (3%).  Interest rates remain at levels that stimulate the aggregate spending in the economy.  Once the balance of risks was evaluated, the Board of Directors it would be appropriate to maintain the current expansionary monetary policy.

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

Bogota