Banco de la Republica keeps the benchmark interest rate at 3.25% and extends the international reserve purchase program
At today’s session, the Board of Directors of the Banco de la Republica decided to keep the benchmark interest rate at 3.25%. In making this decision, the Board took the following aspects into consideration:
- The recent data on economic activity from various parts of the world suggest that the growth recovery will continue in 2014 but at a slightly slower pace in comparison to previous predictions. The recovery in the Euro zone has continued at a modest rate while, at the same time, the slowdown in some emerging economies has accentuated.
- Foreign interest rates and the price of the dollar are surpassing the averages seen in 2013. It is probable that a significant part of those rises will be permanent to the extent that they are due to less expansionary levels of global liquidity. The recent decision by the Federal Reserve and forecasts made by its members for the benchmark interest rate reaffirm this trend.
- The increased weight Colombian public debt securities have in the benchmark portfolios of some international investors could offset to some degree the effects that the adjustment in global liquidity has on the exchange rate and market interest rates in Colombia.
- In the fourth quarter of 2013, the annual growth of output was 4.9%. For the entire year it was 4.3% which is above the revised rate of 4% for 2012. Growth surged in the second half of the year driven especially by investment. Household consumption remained at growth rates that are close to their historical average over the course of the year while public consumption grew more than the output every quarter. With respect to supply, the sectors with the highest growth for the quarter were in mining, agriculture, construction, and personal and social services. Industry showed a poor performance. Similar trends were seen for the entire year.
Recent information on the growth of retail sales, coffee production, energy consumption, and the continued decline of unemployment suggests a strongly dynamic economy over the course of the year. Nevertheless, the drop off in consumer confidence in February as well as the weakness in exports and in manufacturing point in the opposite direction. For 2014, the Bank’s technical team still forecasts that economic growth will be between 3.3% and 5.3% with 4.3% as the most probable figure.
- In February, the growth of credit as a whole stabilized at rates that were higher than the nominal GDP. The growth of consumer loans has moderated, but mortgage loans have surged. The real interest rates for loans remain at levels that drive economic growth.
- Annual inflation rose in February for the third consecutive month and was at 2.32% which is within the target range. The average for the measures of core inflation also continued to rise and came to 2.63%. The inflation expectations of economic analysts for a year from now as well as those derived from public debt paper with maturities of less than five years remain at around 3%.
To summarize, economic growth surged in the second half of 2013 and inflation continued rising in February. Interest rates remain at levels that stimulate aggregate expenditure, and they are expected to contribute to making output approach the economy’s productive capacity and inflation converge with the goal of 3% in 2014. Having evaluated the balance of risks, the Board of Directors decided it would be appropriate to keep the benchmark interest rate unaltered.
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.
Furthermore, the Board of Directors of the Banco de la Republica decided to continue the current program of purchasing international reserves for three months. Therefore, between April and June up to US$1.000 billion will be added.
Published: 27/03/2014
