Banco de la Republica keeps the benchmark interest rate unchanged

In their session today, the Board of Directors of the Banco de la Republica decided to leave the benchmark interest rate unchanged. Consequently, the base rate for liquidity-expansion auctions will remain at 4.75%. The decision was made with the following in mind: 
 

• The economic activity indicators in the third quarter of 2012 confirmed the weakness of the global economy. Europe continues to contract and the United States is growing at a moderate pace. The slowdown seen in some of the larger emerging economies seems to be stabilizing. In this context and without inflationary pressures, it is to be expected that the foreign interest rate will remain low for a prolonged period. Likewise, in spite of the slower worldwide growth, the international price of petroleum and other commodities remain high. 

• The international financial conditions have improved, partly because of the policy actions of the main central banks around the world. Volatility has declined and the prices of some assets have risen. However, the uncertainty associated with the problems of public finances and of the banks in some advanced economies are still high.

• In Colombia, just as in other countries, the weakness of the global economy has been reflected in the slower growth of exports and industrial production. The terms of trade remain high and stimulate national income. 

• In spite of the signs of a slowdown, expansion in the coming quarters will continue to be driven by domestic demand. A healthy financial system, household confidence, and a strong labor market will continue to support the growth of consumption. The prices of commodities, the confidence levels, the availability of foreign and domestic financing and foreign direct investment, in turn, will contribute to the performance of the investment. 

• The growth of credit continues to slow down and the indices of prices for new and used housing are at historically high levels. 

• Inflation, the average of the indicators of core inflation, and expectations are very close to the mid-point of the target range (3%). 

• The greatest risk for the country’s economic activity is still a strong recession in Europe. It appears that the probability that this will occur has declined given the actions taken by European authorities and the reactions of the markets on that continent. 

Based on the evaluation of the current balance of risk, the Board of Directors thought it appropriate to keep the benchmark interest rate at 4.75%. New information including not only information concerning developments in the events in advanced countries and their impact on confidence, global demand, and the international prices for commodities but also that coming from domestic performance will make it possible to take future monetary policy actions. 

The Board reiterates that the Banco de la Republica has the tools and sufficient resources to meet the liquidity needs in national and foreign currency that the economy requires on a regular basis as well as those needs that might appear in an environment of international financial turbulence. 

The Board will continue to monitor the trend and projections for economic activity and inflation in the country, the asset markets, and the international situation carefully. Finally, they also reiterate that monetary policy will depend on the new information that is available. 

Bogota