Banco de la Republica Holding the Benchmark Interest Rate at 3.25%
At today’s session, the Board of Directors of the 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:
- New information suggests that the global economy is recovering slowly and somewhat better than expected. In the United States, the growth of the third quarter GDP was revised upward and the figures as of November continue to show recovery although at a modest rate. The euro zone is probably growing again and growth in the large emerging economies in Asia and Latin America is heterogenous.
- In the United States, the Federal Reserve announced that they will buy a lower amount of financial assets in January and ratified their commitment to maintaining the current level of interest rates for a prolonged period.
- The terms of trade dropped in October but remain at high levels. No rise in the terms of trade is expected in a scenario of slow recovery of the global economy and the expectation of better conditions in the worldwide supply of petroleum.
- In Colombia, the economic growth in the third quarter was higher than had been estimated mainly due to the strength of construction. Public expenditures surged and household consumption grew at a positive pace. The growth of exports was low and below that of imports. From the beginning of the year until September, the growth of the GDP (3.9%) was similar to what had been projected by the technical team at the Banco de la Republica.
- For the fourth quarter of 2013, the indicators of consumer confidence, economic expectations, retail sales, and car sales suggest that household consumption is growing at a good rate. The surge in mortgages also indicates a favorable performance in the investment in buildings. With respect to supply, industry excluding coffee bean threshing declined (-0.1%) again in October although at a lower rate than had been registered a month before.
- With the above results, the technical team did not modify the estimated range of growth for all of 2013 (between 3.5% and 4.5%). Within this range, 4.1% is the most probable figure. This means that the economic growth of the second half of the year will be considerably higher than what was observed in the first.
- In November, the total growth of loans slowed down although it continues to be higher than the rise in the nominal GDP. The majority of the nominal interest rates for loans moved lower during the month. In real terms, they are staying below their historical averages (except for credit cards) and driving economic growth.
- Annual consumer inflation was at 1.76% in November, a figure that was lower than expected. This fact was mainly due to a slowdown in the annual change in prices for regulated items and food. The average for core inflation remained stable at 2.46%.
- The inflation expectations that economic analysts have for the coming year as well as those derived from public debt paper with maturities of less than five years remained relatively stable and were below 3%.
To summarize, economic growth in 2013 is expected to be similar to what was seen the previous year. The interest rates are staying at levels that stimulate the economy’s aggregate outlays. Having evaluated the balance of risks, the Board of Directors decided it would be appropriate to keep the benchmark interest rate unchanged.
The Board of Directors of Banco de la República announced the international reserves purchase program between January and March of 2014 and will accumulate up to US$1 billion among that period.
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 information available.
Bogota, D. C.
