The Banco de la Republica Keeps the Benchmark Interest Rate at 3.25%.

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:

- In the fourth quarter of 2013, global economic activity continued to recover due to the greater strength of the developed economies, especially the United States. In the euro zone, the economic indicators suggest that quarterly growth will be low but positive.  The growth of the large emerging economies in Asia and Latin America was diverse with rates that were close to or lower than their potential.  For 2014, the estimates suggest that global recovery will continue and that the country’s trading partners will have an average growth that is above what was registered in 2013.

- The U.S. Federal Reserve has announced that they will reduce the amount of their purchases of financial assets again in February and confirmed their commitment to maintain the current interest rate level for a lengthy period.  Thus, to the degree that the liquidity levels continue to be less expansionary, the cost of international financing may rise.

- The improvement in the outlook for the United States economy and the monetary policy implications for that country is affecting the bond, stock, and monetary markets.  The Colombian peso has devaluated with respect to the dollar.  The international price for petroleum, in turn, has remained at high levels and the prices for coal, nickel, and coffee stopped dropping.  As a result it, is likely that the terms of trade will stay at favorable levels.

- The technical team has projected an economic growth of 4% to 5% for the fourth quarter of 2013 with 4.5% being the most probable figure.  Household consumption will have grown at rates that are similar to its historical average.  Investment will have shown the greatest rise.  Exports will have surged but less than imports.  Respecting supply, most of the growth will have been in construction (buildings and public works) and agriculture.  The mining sector will have slowed down and industrial growth (including coffee threshing) will have been almost zero.  Based on this information, the Colombian economy is calculated to have grown between 3.7% and 4.3% in 2013.

- An economic growth that is between 3.3% and 5.3% is predicted for 2014 with 4.3% as the most probable figure.

- In December, overall growth of loans slowed down although it remains higher than the rise in the nominal GDP.  The nominal interest rates for loans declined and the ones for consumer loans and mortgages remained relatively stable.  In real terms, they are staying below their historical averages (except for credit card rates) and are driving economic growth.
 
- Annual inflation in December was 1.94%, a figure that is similar to what was projected and below the lower limit of the target range established for 2013 (3% +/- 1 pp.).  The average for core inflation measurements was at 2.5% and 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 are close to 3%.

To summarize, economic growth in 2013 is predicted to be similar to what was seen the year before.  The interest rates remained at levels that stimulated aggregate expenditures and, in 2014, they are expected to contribute to making the output approach the productive capacity of the economy and inflation converge towards the target of 3%.  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.


Published: 04/02/2014