Banco de la Republica (the Central Bank of Colombia) lowers by 25 basis points its intervention interest rate
At its meeting today, the Board of Directors of Banco de la Republica, the Central Bank of Colombia, has decided to lower its intervention interest rate by 25 basis points. In this manner, the base rate for expansion auctions will be 5%. This decision was based on the following factors taken into account:
Growth continues to weaken more than expected worldwide Information suggests a slower growth rate in he United States, while it keeps contracting in Europe. In China and other emerging economies, growth slowdown is higher than predicted, thus mirroring a weakening world demand and previous political actions.
Excess global capacity and lower commodity prices (with the exception of some agricultural goods) have moderated inflationary pressures while permitting the presence of expansionary monetary policies in a significant number of countries. For instance, in the emerging economies, the Central Banks of Brazil, China and South Korea have recently lowered their interest rate in an attempt to counteract the effects of deceleration in demand.
The weakening of economy worldwide is restricting Colombian economic growth through lower external demand and lower international prices for major export products.
These factors are likely to prevail in the same direction in the next few months. Although consumption and investment will be the main source of GDP growth in 2012, these domestic demand components will grow less than in the previous year and are likely to reduce, even eliminate, the current production capacity pressures.
Generally, with the new information available, a GDP growth between 3% and 5% has been projected. This range width is due to uncertainty around the size of global deceleration and its impact on the Colombian economy, as well as on the recovery of civil works and the overcoming of some negative supply shocks currently affecting the industry and mining sectors. For 2013, a growth similar to 2012’ is projected. As it should be expected, the level of uncertainty increases as the forecast horizon grows.
The annual growth of the commercial portfolio continues to slowdown, while consumption credit - though moderate - is still high, and the mortgage portfolio grows at a good pace along with a new-house price index that remains at historically high levels.
In June, annual inflation was 3.2%, below the figure projected by the Bank’s technical team. All core inflation measures dropped and their average stood close to 3.0%. Inflation expectations did also go down: 3.1% is expected for December 2012 and about 3.3% for July 2013, while those deriving from the treasury ‘TES’ bonds at horizons between two and five years are at 2.5%.
According to the evaluation of the current balance of risk, all the members of the Board of Directors deemed it appropriate to reduce the intervention interest rate. Some members had proposed an even higher reduction than the one eventually adopted. The new information will enable the Bank to establish new monetary policy actions concerning both the development of events in the advanced countries, their impact on confidence, global demand and international commodity prices, and internal dynamics.
The Board restates that Banco de la Republica has both the proper tools and sufficient resources to meet local and foreign currency liquidity needs regularly required by the economy as well as those likely to occur in an environment of international financial turmoil.
The Board will continue to keep close watch on the international situation as well as on the behavior and projections of inflation, growth, and the asset markets, while reiterating that monetary policy will depend upon the new information available.
SOURCE: Banco de la Republica http://www.banrep.gov.co/
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