The Central Bank of Colombia Holds its Intervention Interest Rate Steady

At a meeting today, the Board of Directors of the Central Bank of Colombia unanimously decided to make no change in its intervention interest rate. Accordingly, the repo auction base rate will remain at 10%.

Annual inflation in July was 7.52%, which is 34 bp above the rate in June. The build-up was due primarily to higher food and regulated prices. A number of core inflation indicators also rose during July.

In contrast, expectations of inflation at different horizons, measured on the basis of the domestic government bond market (TES), declined sharply after the decision taken by the Board of Directors at its meeting in July. The recent decline in long-term interest rates is also an important factor. Non-tradable inflation without food and regulated prices registered at 15 bp decline in July.

Loan portfolio growth during August was similar to what it was in July, registering an annual increase of nearly 18%. Real interest rates on lending (non-food CPI deflated) declined slightly, and the peso has depreciated against the dollar in recent weeks.

Growth in the world economy is declining significantly. The slowdown in Europe and Japan has been sharp. The United States economy is expanding at a slightly higher rate than was forecast last month, but is expected to grow less in the coming quarters. There also is evidence of less growth in a number of emerging market economies.

The information on hand reflects more moderate growth in internal demand and output in Colombia as well. Tighter financial conditions and the impact of higher food and fuel prices on real available income have curbed the growth in demand. Supply, in turn, has been negatively affected by higher production costs, which reduce production growth and elevate prices.

Inflation is still on the rise in many countries, and various central banks have raised their interest rates. International prices for oil, food and other commodities fell recently, but are still historically high.

In short, the economy is expected to grow by 3.3% to 5.3% in 2008. Annual inflation is likely to remain high in the months ahead, due to high food and fuel prices. Later on, total inflation and core inflation indicators may decline gradually, as a result of less growth in demand, provided expectations of inflation remain low and wage increases are moderate.

In view of the foregoing, the Board of Directors decided to hold its intervention rate steady. In addition, it will continue to keep a close eye on the international situation, as well as inflation, economic growth and their forecasts. It reiterated that monetary policy in the future will depend on whatever new inflation becomes available.

Banco de la República Raises Its Intervention Rate

At a meeting today, the Board of Directors of Banco de la República decided, by a majority vote, to raise the intervention interest rate by 25 bp.  This will increase the base rate for repo auctions from 9.75% to 10%.

Annual inflation in June was 7.18%, which is 79 bp above the rate in May. The build-up was due to a sharp rise in food and regulated prices.

A number of core inflation indicators also increased during June, as did expectations of inflation.  These indicators continue to exceed the targets.

Moreover, the international context is one of mounting inflation that has prompted many central banks to raise their policy rates. International prices for food and fuel remain high.

The information on hand denotes more moderate growth in internal demand and output. Part of the slowdown is due to the sharp drop in civil works during the first quarter and to supply factors, such as the Cerromatoso strike. By the same token, the increase in food and fuel prices reduces real available income and raises production costs, which means more inflation and less growth in the economy.   The results of a range of industrial and consumer surveys, coupled with the figures released by DANE on commerce, industry and construction, confirm the slowdown in growth anticipated for this year. Given the new figures, the Bank’s technical team expects between 3.3% and 5.3% economic growth in Colombia during 2008.

Lower forecasts for growth this year in Colombia and worldwide would suggest no change in intervention interest rates. However, rising inflation, the outlook for inflation next year, and the importance of anchoring expectations of inflation to a downward trend in inflation indicate the intervention interest rate must be increased.  Low, stable inflation helps to maximize economic growth in the long run.

Accordingly, the Board of Directors raised the Bank’s intervention rate to anchor inflation expectations to the long-term targets and particularly due to the risk of the collateral effects of international food and fuel prices.  The country’s monetary policy seeks to avoid having to adopt more drastic measures in the future in response to price and wage hikes that exceed the targets set by Banco de la República.  

The Board will continue to carefully monitor the international situation, as well as the behavior of inflation and economic growth, and their forecasts. It reiterated that future monetary policy will depend on new information that becomes available.

Bogotá, July 25, 2008

Banco de la República holds its interest rate, modifies the exchange intervention scheme, and replaces the marginal reserve requirement with an average reserve requirement of 10%

At a meeting today, the Board of Directors of Banco de la República decided unanimously to leave its intervention interest rate at 9.75%.

Annual inflation was 6.39% in May. This is 66 basis points more than annual inflation in April. The increase was due primarily to the rise in unprocessed food prices because of weather conditions.  International food prices remained high and have exerted upward pressure on prices in the family market basket, despite sharp peso appreciation.

The Board noted that core inflation indicators rose in May, as did expectations of inflation, most of which are above target.  This confirms that the steep rise in demand in the past needs to be curbed to reduce inflationary pressures and to prevent growth from becoming unsustainable.

Although external conditions remain favorable for economic growth, the indicators available in May suggest the increase in internal demand and output has slowed considerably.  This includes the limited growth in commerce and industry, the sharp deceleration in consumer loans, a lower consumer confidence indicator and the scant increase in energy consumption.  The effect of supply factors on GDP growth in the first quarter of the year was emphasized, such as the brusque drop in construction of civil works, the Cerromatoso strike and the reduced number of working days.

In view of these factors, the Board believes the Bank’s intervention interest rates, at their current level, are doing what is needed to slow the growth in demand and, therefore, considers it prudent to maintain the current stance of monetary policy.  However, if expectations of inflation begin to affect prices and wages, that stance will have to be modified.

The Board decided to step up the accumulation of international reserves throughout the remainder of 2008. To do so, it replaced the current scheme, based on monthly options of US$150 million, with daily purchases of US$20 million through competitive auctions. This reinforces the policy of accumulating international reserves to deal with an eventual deterioration in the international environment.  The measure takes advantage of the fact that the exchange rate is currently below sustainable levels.

The monetary effects of this measure will be offset to keep the inter-bank interest rate close to the intervention interest rates. This will be accomplished by eliminating the marginal reserve requirement as of September and raising the ordinary reserve requirement by 10%, on average (11.5% for checking and savings accounts and 6% for time certificates of deposit).  Moreover, the Bank will open its contraction windows, if necessary.

Bogotá, June 20, 2008

Banco de la Republica makes no change in its interest rates

At a meeting today, the Board of Directors of Banco de la República decided, by a majority vote, to leave its intervention interest rate at 9.75%.

Annual inflation was 5.73% in April, which is 20bp less than the month before. As in March, the decline was due to lower prices for perishable foods.  Regulated price inflation continued to register substantial increases as a result of the indexation mechanisms established for certain public utility rates.  The Board emphasized that inflation and expectations of inflation remain above target, as is the case with various core inflation indicators.

External conditions are still favorable for economic growth in Colombia. Recent weeks have seen a sharp rise in international prices for the country’s leading export products, and exports and foreign direct investment have grown at historically high rates. The improvement in the country’s terms of trade stimulates national revenue. The current account deficit in the balance of payments for 2008 is expected to be less than what was forecast several months back. This will help to make economic growth more sustainable.  

Available figures show that industry and commerce, two sectors that are highly sensitive to internal demand, registered less growth in March than was forecast by Banco de la República. The latest surveys of the business community also suggest growth in demand is down.  However, more information is needed to identify the risks posed by less economic growth this year and in 2009.

The increase in retail loans continued to slow, as was expected in response to the hike in reserve requirements and in Banco de la República’s interest rate. However, credit (especially retail loans) continues to grow at rates above the nominal GDP increase expected for this year.

The Board believes that meeting the long-range target for inflation is crucial to avoiding a period of economic difficulties in the future.  More moderate growth in internal demand and credit reduces inflationary pressure and allows for sustainable economic growth.

The Board will continue to monitor the international situation, as well as inflation and economic growth, specifically their behavior and forecasts. It reiterated that monetary policy in the future will depend on new information that becomes available.

Bogotá, May 23, 2008

Banco de la República decides not to change its benchmark rate

In a meeting today, the Board of Directors of Banco de la República decided to leave its benchmark interest rate at 9.75%.

Annual inflation in March was 5.93%. This is 42 bp less than in April, essentially because of lower food prices. However, inflation in regulated prices increased, as did several core inflation indicators.

Available figures show the monetary-policy measures adopted in recent months have achieved the desired results.   Loan growth has slowed, particularly in the case of commercial and retail loans.  The various indicators of inflation expectations are still high, but have declined.

The Board underscored the continued positive momentum in the Colombian economy. The first-quarter average for the consumer confidence indicator remained high, and merchandise exports in the early months of the year increased at rates above those registered at the end of 2007.   The sharp rise in imports of capital goods suggests that private investment remains strong.

The external context continues to be characterized by the uncertainty surrounding the economic situation in the United States and how it might affect the world economy.  Yet, so far, export performance, terms of trade and foreign direct investment reflect an external environment that is favorable to Colombia’s economic growth.

In addition, the Board decided to reinforce control over capital coming into the country by requiring a deposit on import funding beyond six months.  The deposit also apples to cases where residents are indirect recipients of resources from foreign loans used to set up companies outside the country.

The Board will continue to monitor the international situation closely, and will keep an eye on inflation and growth trends and forecasts.  The members reiterated that the course of monetary policy in the future will be determined by new information, as it becomes available.

Bogotá, April 25, 2008

Banco de la República Holds its Benchmark Rate

At a meeting today, the Board of Directors of Banco de la República agreed to leave its benchmark interest rate at 9.75%.

Inflation in February (1.5%) went beyond the Bank’s forecasts and the market’s expectations, primarily due to higher food prices.

The figures on hand confirm the monetary-policy measures adopted in recent months have achieved their purpose.  The growth in credit has slowed, particularly with respect to commercial and consumer loans.

It was emphasized that the Colombian economy continues to grow, as indicated by the major rise in exports, in indicators of installed capacity, and in shipment-balance and confidence indexes in the productive sector.

The international context during the past month was characterized by serious deterioration in the United States economy and its financial system. This has sparked uncertainty about the extent of the recession in that country, how long it will last, and the impact it might have on the world economy.  Added to this is the possibility of future problems Colombia might have with its major trading partners.

Despite continued inflationary pressures, the Board believes the worsening external context warrants waiting until more inflation is available before adopting additional monetary policy measures.

Finally, given the uncertainty derived from the current state of the world economy, the Board decided foreign exchange may be purchased through put-option auctions held monthly for US$150 million. This existing mechanism to accumulate reserves allows US$1,800 million to be purchased in one year.

The Board will continue to carefully monitor the international situation and the forecasts for inflation and growth. It reiterated that monetary policy in the future will depend on the new information that becomes available.

Bogotá, March 28, 2008

Banco de la República raises its benchmark interest rate by 25 basis points

At a meeting today, the Board of Directors of Banco del Banco de la República decided, by a majority vote, to raise its benchmark interest rates by 25 basis points. Consequently, the base rate for repo auctions will go from 9.5% to 9.75%.

Inflation was 1.06% in January, exceeding the Bank’s forecasts and the market’s expectations.  This outcome is explained fundamentally by food prices.  Non-food inflation was up slightly in January, reaching the top of the target range (4.5%). Closing out the month at 6%, annual inflation increased for the fourth month in a row, exceeding the inflation target for 2008.

In addition to analyzing the origin of current inflation, the Board also identified the factors that pose a risk to future inflation.  Although growth in aggregate demand has slowed, thanks to the monetary policy decisions adopted in recent months, the available figures show it remains strong.  This is suggested, for example, by the latest consumer confidence surveys and the momentum in exports.  Therefore, under the present conditions, the economy is likely to grow by about 5% in 2008.

The various assessments of inflation expectations, based on surveys and the TES market, show expectations for inflation one year or more down the road have increased in recent months.   This could make it more costly to reduce inflation in the future, having a negative impact on growth and employment.

The Board also analyzed the international economic situation. Although there is evidence of a slowdown in the United States and Europe, it concluded there are, as yet, no signs of contagion in the Colombian economy. Terms of trade are at historically high levels, the flow of trade remains strong, and international investor confidence in the Colombian economy continues to be solid, as demonstrated by the sharp rise in foreign direct investment in Colombia so far this year, primarily in oil, coal, commerce and communications.  In fact, it is the momentum in foreign direct investment, not the short-term capital flows induced by differences in interest rates between Colombia and other countries, that explains the net capital inflows in the balance of payments during that period.

The Board will continue to monitor the international situation carefully, and will keep an eye on inflation and growth trends and forecasts. It reiterated that the course of monetary policy in the future will be determined by new information, as it becomes available.

Bogotá, February 22, 2008

Banco de la República Transfers $1.4 Trillion Pesos in Profits to the National Government

At a meeting today, the Board of Directors approved the Banco la República’s financial statements for 2007.    Pursuant to Law 31/1992, the Bank will transfer Col$1.4 trillion pesos in profits to the national government.

Most of the profits came from the return on international reserves.  As to outlays, the Bank continued its policy to rationalize expenses for personnel and operations. The 2007 financial statements were authorized by the National Superintendent of Financial Affairs. They were audited by an international firm and by the Bank’s General Auditor.

Bogotá, February 22, 2008

Banco de la República holds its benchmark interest rate

The Board of Directors of Banco de la República decided unanimously to leave its benchmark interest rate at 9.50%.

The Board emphasized the difficult situation in the international environment and the uncertainty surrounding forecasts for growth in the United States and the world economy. Less growth could affect Colombia’s economic performance, which will depend on the extent of the slowdown in those countries and its impact on exports, commodity prices, capital flows and remittances, among other factors.

Inflation at the end of 2007 (5.69%) was above target, mainly due to the increase in food and regulated prices. The Board reiterated its commitment to adopting the policy decisions that are required to maintain inflation within the agreed range, which is 3.5% to 4.5%, and will monitor inflation pressures originating outside the country, particularly with food and fuel.

Available figures show the Colombian economy is still dynamic and will register around 7% growth in 2007. A slowdown is expected in 2008, the extent of which will depend on the international situation. Even so, technical studies done by the Bank show GDP growth will remain vigorous in 2008, near the average for the last five years.

The Board will continue to keep a watchful eye on the international situation, inflation forecasts and figures, and economic growth. It reiterated that monetary policy in the future will depend on new information and its impact on inflation forecasts in light of the targets.

Bogotá, Colombia January 25, 2008

Banco de la República holds its benchmark interest rate

At a meeting today, the Board of Directors of Banco de la República decided to leave its benchmark interest rate at 9.50%.

Annual inflation went from 5.16% in October to 5.41% in November, primarily due to food prices.  Added to this were the increases in regulated prices and those for tradable goods. Inflation in non-tradable goods, excluding food and regulated prices, continued to decline and was 5.27%.

The figures show that economic growth remains positive and the country’s monetary policy continues to have an effect in terms of curbing some of the growth in credit.  However, as a result of added uncertainty in international markets, estimates of economic growth for our major trading partners were revised downward. 
 
The Board will continue to carefully monitor the impact international economic difficulties could have on growth.  It also will keep an eye on the trend in inflation pressure originating outside the country, particularly pressure exerted by international food and fuel prices.

Finally, it reiterated that monetary policy in the future will depend on new information and how it affects projected inflation in light of the targets.

Bogotá, December 14, 2007

Inflation targeted at 4% for 2008 and the intervention interest rate at 9.50%

At a meeting today, the Board of Directors of Banco de la República set the inflation target range for 2008 at 3.5% to 4.5%, with 4% as the specific target for legal effects. This decision is consistent with the announcement in November 2006.

It also decided the midpoint for target inflation in 2009 will be between 3% and 3.5%, which is within the long-term range for inflation (2% - 4%).

The Board believes gradual and careful management of the disinflation process is coherent with Banco de la República’s constitutional mandate to preserve the buying power of domestic currency and to contribute to sustained growth in output and employment.  It also emphasized how important it is, for the sake of good economic performance, that economic agents keep these targets in mind with respect to future price and wage adjustments.  

Moreover, in an environment characterized by sharp growth in aggregate demand and credit, high use of installed capacity, and an international context marked by a moderate slowdown in the world economy, the Board unanimously decided that an additional hike in the intervention interest rates would be necessary to achieve these targets.   Consequently, it raised the Bank’s intervention rate by 25 basis points, from 9.25% to 9.50%.

Based on available data, the Board believes 9.50% interest is close to a level consistent with meeting the targets announced for inflation.  This rate also is regarded as coherent with maximum sustainable economic growth.

Finally, the Board reiterated that monetary policy in the future will depend on new data and its impact on projected inflation.

Bogotá, November 23, 2007

Banco de la República Holds Its Intervention Interest Rates

At a meeting today, the Board of Directors of Banco de la República decided not to change its intervention interest rates. As a result, the base rate for repo auctions will remain at 9.25%.

Inflation stayed on a downward trend throughout September, primarily because of the drop in food inflation. The core inflation indicators also declined in terms of their annual rate.  However, non-tradable inflation, excluding food and regulated prices, still shows no sign of a descending trend.

Available figures indicate growth in aggregate demand in the economy remains strong. In contrast, the uncertainty on international financial markets continues and, as a result, the estimates for economic growth in 2008 with respect to Colombia’s major trading partners have been revised downward.

Accordingly, the Board of Director believes it is appropriate to prolong the pause in intervention interest rate hikes.  The risks mentioned by the Board at its last meeting with respect to the forecasts for inflation and economic growth still exist.

The Board will continue to conduct a careful review of economic developments in and outside Colombia, and their impact on inflation pressures and economic activity.
  
Bogotá, October 26, 2007

Banco de la República Raises its Intervention Interest Rates by 25 Basis Points

At a meeting today, the Board of Directors raised Banco de la República’s intervention interest rates by 25 basis points. The base rate for repo auctions will go from 8.75% a 9% as a result.

There was no increase in consumer inflation during May, and it is expected to decline throughout the second half of the year.  Nevertheless, the annual rise in prices still exceeds the targets set by the Bank, and available information suggests that aggregate demand continues to expand quickly, even more than earlier forecasts predicted.

The Board reiterated its commitment to maintaining a monetary policy that is consistent with the inflation target for 2007 (in 3.5% - 4.5% range), and has ensured convergence towards the long-term target for inflation (3% ± 1 percentage point). This policy helps to keep economic growth on a sustainable course.

It also imposed a uniform required reserve ratio for checking and savings accounts, given the similarity of these financial assets in terms of liquidity.    The ordinary ratio required for such deposits was unified at 8.3 %, and the marginal ratio, at 27%. The required marginal reserve ratio will continue to be calculated pursuant to the percentage at May 7, 2007, and credit institutions will have two “bi-weekly reserve adjustment” periods. The following table shows a comparison of the reserve requirements before and after the Board’s decision.

Bogotá, June 15, 2007 (5:20 p.m.)

Banco de la República Intervenes in the Foreign Exchange Market

Banco de la República reported that US$360m in put options were exercised during May 2007 to control volatility.  That same month, the Bank exercised no discretional intervention in the exchange market and made no final TES B purchases or sales. The Bank was holding $ 1.5 trillion pesos in TES B at May 31, 2007.

Bogotá, June 12, 2007 (4:25 p.m.)

Banco de la República Raises its Intervention Interest Rates by 25 Basis Points

At a meeting today, the Board of Directors raised Banco de la República’s intervention interest rates by 25 basis points. As a result, the base rate for repo auctions will increase from 8.50% to 8.75%.

This decision was taken in view of the forecasts for inflation and the results of the CPI in April, which rose more than expected.  Furthermore, demand and credit continue to grow at a fast pace.

The Board said it will continue to adopt measures that are consistent with the target range for inflation in 2007 (3.5%-4.5%) and will pursue efforts to guarantee convergence towards the long-term target for inflation (3% ± 1 percentage point). This policy helps to keep economic growth on a sustainable course.

The Board also expressed its confidence that the measures adopted on May 6 will have the desired effect in terms of supporting the stance of the country’s monetary policy.

Bogotá, May 18, 2007 (1:57 p.m.)

Highlights of “The Current Situation and Outlook for the Colombian Economy”: A Presentation by Mr. José Darío Uribe, Governor of Banco de la República

1. Inflation

The Governor of Banco de la República, Mr. José Darío Uribe, indicated the recent increase in inflation (6.26% at April 2007) is the result of factors associated with both supply and demand. The supply factors refer to the effects of El Niño weather on food production and the increase in prices for certain regulated goods and services.  The demand factors are associated with the sharp rise in domestic spending, the demand for Colombian products in Venezuela, and increased world demand for agricultural products that can be used to produce alternative sources of energy as a substitute for oil.

The inflationary pressures brought to bear on food prices as a result of El Niño weather are temporary and should disappear during the second half of the year.  However, inflationary pressure associated with international prices for oil and bio-fuels, and the pressure originating with exports to Venezuela, are likely to continue throughout the year.  Inflation in regulated goods is expected to decline during the second half of 2007.

2. Growth

On the supply side, growth during 2006 (6.8%) originated in numerous sectors of the economy, particularly industry, construction commerce and transport.  Investment and household consumption were the major components of demand. These aspects of economic growth allow for optimism about its continuation, given the broad production basis where it originates and the increase in the economy’s potential for output.

In fact, domestic demand was up by 9.9% in 2006, fueled largely by investment in machinery and equipment.  The growth in household consumption accelerated from 5.5 to 8.0% during the second half of the year, while the GDP growth forecasts for 2007 are between 5% and 6.5%, with an increase in domestic demand of nearly 8%.

3. Interest Rates

Given the acceleration in aggregate demand and credit, the Board of Directors has raised Banco de la República’s intervention interest rates ten times between April 2006 and April 2007, by 25 basis points on each occasion.  The most recent hike, on April 30, placed the base rate for repo auctions at 8.50%. This policy helps to ensure compliance with the target for inflation in 2007 and convergence towards the long-term target, which is in the 2%-to-4% range.  This elimination of the monetary stimulus does not affect the Colombian economy’s potential for growth. Rather, it contributes to the continuity and sustainability of that growth.

The Exchange Rate

At the start of the year, the Board of Directors of Banco de la República voiced its commitment to exchange market intervention aimed at contributing to macroeconomic stability and ensuring a certain balance in GDP growth between the sectors producing tradable and non-tradable goods and services. In pursuit of this policy, the Bank purchased US$ 4,527.4 million on the foreign exchange market during the first four months of the year.

The monetary effects of this intervention are being offset by the Bank, so as not to jeopardize the inflation target.

5. Recent Measures

The Board of Directors adopted a series of measures on May 6, 2007 that reflect its commitment to making sure inflation targets are met.   For example, it imposed a marginal reserve ratio on the amount of Colombian currency deposited by financial institutions. The idea is to reduce growth in the consumer loan portfolio in the financial sector.  The Board also decided to require an external debt deposit equal to 40% of the disbursement value at six months, so as to even up domestic and foreign interest rates on short-term external credit arrangements. Finally, a limit equal to 500% of technical capital was placed on the leveraged portion of derivative operations by exchange market intermediaries. In this case, the idea is to reign in the risk associated with those operations.

Bogotá, May 11, 2007 (4:00 p.m.)

Banco de la República Intervenes in the Exchange Market

Banco de la República reported US$666.2 million in discretionary purchases of foreign currency on the exchange market in April 2007, bringing the total so far this year to US$4,527.4 million.  It made no final purchases or sales of TES B during that month, and was holding Co$ 1.45 trillion in TES B at April 30, 2007.

Bogotá, May 7, 2007 (5:22 p.m.)

At a meeting today, the Board of Directors of Banco de la República Decided on the Following:

1.      A marginal reserve ratio was imposed on each type of local currency liability in amounts that exceed the level registered on May 7. The following percentages apply:

a.      27% for checking accounts and other checkable deposits

b.      12.5% for savings accounts and similar deposits

c.      5% for certificates of deposit maturing in less than 18 months and similar time deposits.

This marginal reserve earns no interest.

1. The external debt deposit stipulated in External Resolution 08/ 2000 was reinstated. It will come to 40% of the disbursed amount, calculated at the representative market rate of exchange on the date the loan is furnished. The deposit will be held for six months.

The purpose is to facilitate monetary management in the midst of an economic situation characterized by a sharp increase in credit and aggregate demand that could jeopardize the inflation target and the stability of the financial system.

1. The leveraged position of derivative operations by foreign exchange market intermediaries was limited to 500% of their technical capital.  In this case, the goal is to reduce the risk to foreign exchange market intermediaries by restricting their leverage possibilities to hedge positions.    

Bogotá, May 7, 2007 (8:15 a.m.)

Banco de la República Will Manage the Bank Reference Indicator (BRI)

At a meeting on April 30, the Board of Directors agreed to manage the bank reference indicator (BRI), as requested by the Colombian Banking Association (Asobancaria). The design of this indicator reflects the reference interest rate representative of liquidity conditions on the money market.

The BRI is a private-sector initiative. It is being supported by Banco de la República as an integral part of efforts to develop the money market in Colombia and to strengthen the mechanisms for monetary policy pass-through.

It was designed by a work group that includes Asobancaria, several banks representing the members of Asobancaria, the Superintendent of Financial Institutions, the Ministry of Credit and Public Finance, and Banco de la República.

By providing the financial system and the general economy with a reference on short-term liquidity conditions, the BRI will bolster development of both the money market and the market for financial derivatives. Derivatives are an important tool for hedging against the risks confronting agents in the Colombian economy.

Banco de la República is scheduled to begin publishing the BRI in the second half of 2007.

Bogotá, May 4, 2007 (10:10 a.m.)

Banco de la República Rules a 25 Basis-point Hike in its Intervention Interest Rates.

The Board of Directors today ruled a 25 bp hike in Banco de la República’s intervention interest rates. As a result, the base rate for repo auctions will go from 8.25% to 8.50%.

According to the Board, the continued growth in demand and credit suggest the need for additional rate hikes.  Food prices, which rose sharply during the first quarter, are expected to decline during the remainder of the year, particularly in the second half.

The Board said it is confident the inflation target for 2007 will be met (in the 3.5% - 4.5% range) and ratified its commitment to adopting the measures necessary to ensure convergence toward the long-term target for inflation (3% ± 1 percentage point). This policy helps to keep economic growth on a sustainable course.

Banco de la República plans to continue its discretionary exchange market intervention.  Moreover,  so as not to jeopardize the inflation target, it will work in coordination with the national government to offset the monetary impact of that intervention.

Bogotá, April 30, 2007 (4:40 p.m.)

Banco de la República Intervenes in the Exchange Market

Banco de la República purchased US$1,836.7 million in foreign currency on the exchange market in March 2007, through discretional intervention. This amounts to a total of US$3,861.2 million so far this year.  Its net sales of TES that same month came to Col$596 billion pesos.  The Bank was still holding Col$1.5 trillion pesos in TES at March 31, 2007.

Bogotá, April 9, 2007 (5:34 p.m.)

The Board of Directors of Banco de la República Reports to Congress

• Consumer inflation was 4.5% at the end of the year. This is the middle of the target range set by the Board of Directors and less than inflation in December 2005 (4.9%), rounding out three consecutive years of compliance with the inflation targets set by the Bank.

• Lower inflation in 2006 was accompanied by a rapid increase in output.  The Colombian economy grew by 6.8% in 2006, a level not seen since 1978. It makes Colombia one of the fastest growing countries in Latin America.

• The Board of Directors has raised interest rates gradually to reduce the monetary incentive, which the economy no longer requires.  In doing so, it hopes to guarantee maximum economic growth consistent with the targets for inflation.  

• The favorable economic situation, marked by rapid growth and lower inflation, has been accompanied by steady appreciation of the peso, largely because foreign and national businessmen are more confident about investing in the country.  During the first quarter of 2007, with the peso under growing pressure to appreciate, the Bank intervened extensively in the exchange market, purchasing US$2,024.5 million in foreign currency between January and February.

Consumer inflation was 4.5% in December 2006. This is less than in 2005 (4.9%) and within the target range for the year, which the Board of Directors has set at 4% to 5%.  It also rounds out three consecutive years of strict compliance with the inflation targets. The first months of 2007 witnessed an upward trend in annual inflation to 5.25% in February.  This is explained, in part, by high food and regulated prices, which are expected to decline during the second half of the year.

In the case of non-tradables, the sharp increase in demand could spell a continuation of recent inflationary pressure. Tradables, however, are expected to be relatively stable, with 2.0% probable inflation.

The growth in supply witnessed during 2006 originated in a number of economic sectors, mainly industry, construction, commerce and transport.  The components that contributed the most to demand were investment and household consumption.  These aspects make the prospect of continued growth seem likely, given the broad productive base where it originates and the increase in potential economic output.  Moreover, the momentum in consumption reflects growing confidence, coupled with the expectation that this component of demand will continue to grow in the future.

With the acceleration in aggregate demand and the likelihood that it could outpace the economy’s production capacity, the Board of Directors raised the Bank’s intervention interest rates nine times between April 2006 and March 2007.  On each occasion, the hike was 25 basis points. With the latest increase, on March 23, the base rate for repo auctions went to 8.25%. This policy is aimed at keeping inflation on target for 2007 and continuing its convergence towards the long-term target, which is between 2% and 4%.

In addition to a favorable economic environment marked by fast growth and falling inflation, the country has seen the peso appreciate gradually.  This is partly the result of growing confidence among foreign and national businessmen with respect to investing in Colombia. High prices for the country’s leading exports, imbalances in the U.S. economy, and surplus liquidity on international markets are factors as well.  The Bank has used sterilized exchange market interventions to curb the trend towards appreciation.

Reducing the internal risks that can stem from excessive growth in demand with respect to the country’s production capacity is indispensable to sustained growth.  If this is not done in time, inflationary pressures can emerge, along with a current account deficit that could become unsustainable. The interest rate hikes ruled by the Board of Directors help to control this situation by slowing the growth in spending.  For the same reason, it is important to have a policy of fiscal restraint that is consistent with monetary policy, particularly fiscal restraint that lends stability to economic growth and reduces pressure on the peso to appreciate.

On the external front, the risks could come from negative shocks to terms of trade or capital markets. The  country has accumulated considerable reserves; these are a kind of insurance that protects the economy against the negative effects that could originate with such shocks.

In terms of its financial situation, Banco de la República reported Col$1,624 billion pesos (b) in profits for 2006, with Col$2,730 b in income and Col$1,106 b in outlays.  Profits were up by Col$1,299 b compared to 2005, thanks to an increase of Col $1,556 b in earnings.  Profits for 2007 are projected at Col$1,288 b. This is Col$335.9 b less than in 2006, primarily because of less income from returns on international reserves and more outlays to cover interest paid on the reserve ratio held in deposit accounts and on funds deposited by the national government.

Bogotá, March 30, 2007 (11:21 a.m.)

Banco de la República Activates Interest-bearing Deposits as a Monetary Contraction Tool

Banco de la República, pursuant to a decision reached earlier by its Board of Directors, announces it will continue its active and discretional intervention in the exchange market.  The monetary expansion resulting from that intervention is offset by the Bank to keep short-term interest rates at levels regarded by the Board as consistent with the targets for inflation.  One of the contraction tools available for that purpose, among others, are interest-bearing deposits that do not constitute reserves held by the Bank on open-market operations. These interest-bearing deposits were authorized by the Board of Directors on December 17, 2004.

The Monetary Intervention and Exchange Committee, as instructed by the Board of Directors, is working to implement this contraction tool. It will be activated on Monday, April 2, 2007 under the following terms:

• Banco de la República will open auctions for interest-bearing non-reserve deposits at 7 and 14 days.

• The amounts of these auctions will be defined in a manner intended to keep the market’s short-term interest rates in line with the Bank’s intervention interest rate. The amounts in question will be announced in the auction call.

• The base interest rate for the auctions will be equivalent to the one-day repo rate, minus 10 basis points, as instructed by the Board of Directors on June 2, 2006. The Bank’s repo rate is now 8.5%, and the base rate for the interest-bearing non-reserve deposit auctions is 8.15%.

• In addition, unlimited deposit-taking at seven days in the form of interest-bearing deposits that do not constitute reserves held by the Bank will be authorized at a Lombard contraction rate equivalent to the base rate for the interest-bearing deposit auction, minus 100 basis points.  Today, the Lombard contraction rate is 7.15%.

• The Bank is allowed to conduct monetary contraction operations through other instruments as well, such as final TES sales, government deposits with the Bank, and the adjustment in repo quotas.  

The Bank will continue to use these measures to offset the monetary impact of exchange market intervention, so as not to jeopardize the inflation target set by its Board of Directors.

Bogotá, March 30 de 2007 (7:43 a.m.)

Banco de la República Raises its Intervention Interest Rates by 25 Basis Points

At a meeting today, the Board of Directors raised Banco de la República’s intervention interest rates by 25 bp. The repo auction rate will increase from 8% to 8.25% as a result.

Growth in demand and credit remains high.  Coupled with the forecasts for inflation and the way core inflation indicators and the prices of certain non-tradable goods and services have behaved, this seems to suggest it is advisable to raise interest rates.

The Board expressed confidence that the inflation target for 2007 will be met (3.5% - 4.5% range) and ratified its commitment to adopting the measures necessary to guarantee convergence towards the long-term target for inflation (3% ± 1 percentage point). This policy helps to keep economic growth on a sustainable course.

Banco de la República plans to continue its discretionary exchange market intervention and will continue, in coordination with the national government, to offset the monetary impact of that intervention, so as not to jeopardize the inflation target.

Bogotá, March 23, 2007 (3:22 p.m.)

Banco de la República Intervenes in the Exchange Market

Banco de la República purchased US$1,022.9 million in foreign currency on the exchange market in February 2007, through discretional intervention, bringing the total so far this year to US$2,024.5 million.  That same month, it made no final purchases or sales of TES B, and was holding Col$2.2 trillion pesos in TES B at February 28, 2007..

Bogotá, March 12, 2007 (3:34 p.m.)

Consolidated Public Sector Balance for 2006

The balance for the consolidated public sector (CPS), estimated by the Economic Studies Divisions at Banco de la República according to sources of financing, shows a deficit equal to 0.9% of GDP for 2006. In absolute terms, the figures for the same period show a Col$2,707.5 billion deficit (0.9% of GDP) for the CPS.

By sectors, the CPS balance is based on the following figures:

Bogotá, March 2, 2007 (5:35 p.m.)

Banco de la República Raises its Intervention Interest Rates by 25 Basis Points

At a meeting today, the Board of Directors raised Banco de la República’s intervention interest rates by 25 bp. This implies an increase from 7.75% to 8% in the base rate for repo auctions.

A look at the state of the economy and its prospects suggest the accelerated growth in aggregate demand and credit will continue.    Coupled with the core inflation indicators and the performance of prices for certain non-tradable goods and services, this seems to suggest the advisability of continuing to raise interest rates.

The Board ratified its commitment to adopt the measures necessary to ensure convergence toward the long-term target for inflation (3% ± 1 percentage point).

Banco de la República plans to continue its discretionary exchange market intervention and will continue, in coordination with the national government, to offset the monetary impact of that intervention, so as not to jeopardize the inflation target.

Bogotá, February 23, 2007 (12:54 p.m.)

Banco de la República Transfers $1.18 Trillion Pesos in Profits to the National Government

At a meeting today, the Board of Directors approved Banco de la República’s financial statements for 2006.  Pursuant to Law 31/1992, it will transfer Col$1.18 trillion pesos in profits to the national government.  These funds will be turned over in US dollars.

Most of the Bank’s profits for 2006 originated with returns on international reserves and the increased value of investments in TES, which is uses to implement monetary policy.  The highlights include the  limited increase between 2005 and 2006 in personnel expenses (5.8%) and general expenses (4.4%).  In real terms, personnel and general expenses declined by 13.5% and 28.2%, respectively, between 2005 and 2006.  The Bank has cut its staff by 15.6% in the last six years. All of these accomplishments are the result of a continuing policy to rationalize its personnel and operating expenses.

The financial statements were authorized by the Superintendent of Financial Institutions. They are audited internationally and by the General Auditor of Banco de la República.

Bogotá, February 23, 2007 (12:54 p.m.)

Banco de la República Intervenes in the Exchange Market

Banco de la República announced it purchased US$ 1,001.6 million in foreign currency on the exchange market in January 2007, through discretional intervention. It reported no final TES B purchases or sales during that month.

Highlights of “A Report on the Colombian Economy and Rendering of Accounts for 2006”: A Presentation by Mr. José Darío Uribe, Governor of Banco de la República