The Board of Directors of Banco de la Republica, the Central Bank of Colombia, in its session today has decided to keep the intervention interest rate unaltered at 5.25%. This decision was made upon having taken the following into account:
- In February, annual inflation (3.55%) remained stable with respect to the previous month and has continued to fall since October 2011. The average of base inflation measurements remained around 3%. The foregoing and the recent monetary policy actions helped reduce inflation expectations. It is hoped that the latter will continue to converge towards the mid point of the target range.
- Economic growth in the fourth quarter of 2011 (6.1%), like in the entire year (5.9%), ratify the vigorous expansion of the economy. Internal demand dynamics, which had shown a quarter-to-quarter upward trend, underwent a deceleration by the end of the year and recorded a 7.9% rate, just as the one observed in early 2011. The raised rhythm of spending for several quarters now has led demand to fill the installed capacity in various economic sectors.
- The recent growth deceleration seen in the manufacturing industry and some other data already known in the first quarter of 2012 suggest that growth in this period may be lower than in late 2011. The new information will help more certainly establish whether internal demand dynamics is coherent or not with the sustainable growth of the economy and the attainment of the inflation target.
- Credit growth, particularly consumers’, continues to be high; this indicates that household debt levels have risen significantly.
- Although nominal and real interest credit rates have indeed gone up in the past 12 months, they remain at lower levels than their estimated averages since 2000, with the exception of credit cards.
- In the external context, forecasts for 2012 suggest negative growth in Europe, while in the United States a rate somehow lower than its potential could be expected. The emerging countries might grow at a slower pace, but closer to the long-term rate. For this reason, our commercial partners’ average growth in the current year is likely to be lower that that observed in 2011.
- The international oil price has continued to rise, and quotations for other basic products exported by Colombia remain at high levels. Consequently, exchange terms are historically high and foster national income growth. On the other hand, the peso appreciation may have been affecting the behavior of some tradable sectors.
- The risk of intense recession in Europe with significant negative impacts on the Colombian economic activity remains, but the likelihood of its occurrence has fallen in the past few weeks.
- Expectation-based risks on inflation have become more moderate, while those that might arise from credit or demand behavior still exist.
According to the present risk-balance assessment, the Board of Directors has decided to maintain the intervention interest rate unaltered. The new information will allow the Bank to establish new monetary policy actions to be followed.
The Board will continue to carry on its careful monitoring of the international situation, inflation behavior and projections, and the asset market performance, while reiterating that the monetary policy will depend on the new information available.