Banco de la Republica (the Central Bank of Colombia) keeps its intervention interest rate unaltered at 4.75%

At its meeting today, the Board of Directors of Banco de la Republica, the Central Bank of Colombia, decided to keep its intervention rate unaltered. In this manner, the base rate for expansion auctions will remain at 4.75%. The following factors were taken into account in the decision-making process:

• Economic activity indicators published last month confirm a slight weakening in global economy.  In Europe, economic conditions continued to slow down and, likely, the region GDP fell in the third quarter. Growth in the United States is keeping a moderate pace while, in Japan, the economy is also failing. In this context, and with no inflationary pressures, the central banks in Europe, the United States and Japan announced enhanced monetary stimuli for a more prolonged period. In a noticeable number of emerging economies, their common factor has been export and industrial production deceleration.   
   
• Although international prices for commodities fell down, they nevertheless continue to be high. Consequently, Colombian terms of trade are still elevated and propel national income.  However, according to the more recent (July) data available, the total value of Colombian exports fell due to external demand weakening and a decrease in oil prices.  
   
• In Colombia, GDP growth in the second quarter (4.9% in annual terms) exceeded the range estimated by the technical team (between 3.3% and 4.8%).  This underestimation was due to a growth higher than projected (annual 6.4%) in internal demand.  Figures of economic activity in the third quarter suggest that the annual GDP growth will be lower than in the second quarter.  For the full year 2012, economic growth is likely to be higher than the midpoint of the estimated range (between 3% and 5%).
   
• In August, credit growth continued to slow down, in this way diminishing financial imbalance risk. Real interest rates are standing at levels close to the average observed since 2000.
   
• Although both inflation and the average of base inflation measures showed a slight increase in August, they are nonetheless standing very close to the midpoint of the inflation rate (at 3.1%). One-year inflation expectations remained stable at 3.3%, while those resulting from the Colombian 2, 3 and 5-year treasury bonds – TES – did increase, but still remaining below 3% (the midpoint of the target range).

According to the current risk balance assessment, the Board of Directors deemed prudent to keep the intervention interest rate at 4.75%. This new information will allow for the establishment of further actions of both monetary policy concerning the development of events in the advanced countries and their impact on confidence, global demand, and international prices for basic goods and those from internal demand.

In addition, the Board has decided that, between October 1st and March 29th, it will buy at least US$3 billion using the daily auction mechanism of at least US$20 million.

The Board reiterates that Banco de la Republica has the tools and sufficient resources to meet liquidity needs in both local and foreign currency as usually required by the economy, as well as those likely to occur in an environment of international financial turmoil. 

The Board will continue to keep a close watch on the international situation, on inflation behavior and projections, on growth and the performance of the asset markets, and confirms that monetary policy will depend of the new information available.

Bogotá