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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 left its intervention interest rate unchanged. Consequently, the base repo auction rate will remain at 3%. This decision was taken in light of the following factors:
The Board will continue to keep a close watch on the international situation and on forecasts and performance with respect to inflation and growth. It reiterated that monetary policy in the future will depend on whatever new inflation becomes available. Bogotá, Colombia
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 left its intervention interest rate unchanged. Accordingly, the base repo auction rate will remain at 3%. This decision was taken in light of the following factors: • Annual consumer inflation in May was 2.07%. This is slightly higher than annual inflation in April (9 bp), but less than what was anticipated by the market and by the Central Bank’s technical team. • Most indicators of core inflation (which does not include the more volatile prices, such those for food) stayed in the lower part of the long-term target range for inflation set by the Board of Directors (3% +/- 1%). Inflation expectations continued to decline. • The outcome for inflation during the past month is in line with the technical team’s forecasts, which suggest – with a high degree of confidence –that inflation will be within the long-term target range in 2010 and in 2011. • The information received in the last few weeks indicates the Colombian economy will grow at a faster pace than expected, without producing inflationary pressures. The increase in exports, bolstered by recovery in the momentum of the global economy and better terms of trade, confirms the build-up in the Colombian economy, as do other factors such as the increase in consumer and producer confidence, the momentum in a number of leading indicators and the soundness of the financial system. • The international markets have been quite volatile as a result of the public debt crisis in several European countries. So far, the effects of that crisis are uncertain. However, it is noteworthy that the Latin American economies show an increasingly stronger recovery accompanied by a build-up in their currencies. • The Board of Directors believes its expansive monetary policy contributes to economic growth. After a detailed analysis of the behavior of the exchange rate and its external and internal determinants, the Board of Directors decided to maintain its decision to accumulate US$20 million daily in international reserves up to June 30 of this year. Bogotá, Colombia
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 left its intervention interest rate unchanged. Accordingly, the base repo auction rate will remain at 3%. This decision was taken in light of the following factors:
The Board of Directors will continue to keep a close eye on the international situation and on forecasts and performance with respect to inflation and growth. It reiterated that monetary policy in the future will depend on whatever new information becomes available. Bogotá, Colombia
The Central Bank of Colombia Lowers its Intervention Interest Rate by 50 Basis Points At a meeting today, the Board of Directors of the Central Bank of Colombia lowered its intervention interest rate by 50 basis points. This decision placed the repo auction base rate at 3.00% and was taken in light of the following factors.
The Board of Directors will continue to keep a close watch on the international situation and on forecasts and performance with respect to inflation and growth. It reiterated that monetary policy in the future will depend on whatever new information becomes available. Given the increase in Treasury deposits with the Central Bank, it also was decided at today’s meeting that the monthly sales of TES, instituted to offset the monetary effect of reserve accumulation, would be suspended. Bogotá, Colombia
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 left the intervention interest rate unchanged. Accordingly, the base repo auction rate will remain at 3.50%. This decision was taken in light of the following factors:
The Board of Directors will continue to keep a close eye on the international situation, as well as inflation and economic forecasts and performance. It reiterated that monetary policy in the future will depend on whatever new information becomes available. Bogota, Colombia
The Central Bank of Colombia leaves its intervention interest rate unaltered At a meeting today, the Board of Directors of the Central Bank of Colombia left the intervention interest rate unaltered. Accordingly, the repo auction base rate will remain at 3.50%. This decision was based on the following factors:
The Board of Directors will continue to monitor the international situation closely, as well as performance and forecasts for inflation and economic growth. It reiterated that monetary policy in the future will depend on whatever new information becomes available. Bogotá, Colombia
At a meeting today, the Board of Directors of the Central Bank of Colombia agreed to make no change in the intervention interest rate. Accordingly, the repo auction base rate will remain at 3.50%. This decision was based on the following factors:
The Board of Directors will continue to keep a close eye on the international situation and on performance and forecasts with respect to inflation and economic growth. It reiterated that future monetary policy will depend on whatever new information becomes available. Bogotá, Colombia
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 agreed not to change the intervention interest rate, holding it steady at 3.50%. That decision was based on the following factors: • Annual consumer inflation in November was 2.37%, prolonging the downturn observed throughout the year. The core inflation indicators (which do not include the more volatile items, such as food) continued to decline. Inflation expectations were down as well, and are now within the range determined by the Board for next year, which coincides with the long-term range for inflation (between 2% and 4%). • November witnessed a generalized price reduction for a number of items in the basket, encompassing a wide range of goods services. Accordingly, inflation at year’s end will be below the mid-point in the long-term target (3%) and close to 2%. • Although the external context has improved in recent months, economic recovery in the developed countries remains slow. The intermediate and long-term prospects for the Latin American economies and for other emerging countries are more favorable. Nevertheless, the growth projections for Venezuela show a significant drop in GDP, both for this year and in 2010. • The information at hand shows continued recovery in quarterly GDP levels, with low annual growth rates. • The Central Bank’s expansive monetary policy has allowed for the steady reduction in interest rates on deposits and lending. The Board of Directors expects the benchmark rate, as it now stands, to continue to stimulate economic growth in an environment characterized by a healthy financial system. The Board of Directors will continue to keep a close eye on the international situation, inflation and inflation forecasts and economic performance. It reiterated that future monetary policy will depend on whatever new information becomes available. Bogota, December 18, 2009
IMF Executive Board Completes Review of Colombia’s Performance under the Flexible Credit Line The Executive Board of the International Monetary Fund (IMF) today completed its six-month review of Colombia’s qualification for the arrangement under the Flexible Credit Line (FCL). The Board reaffirmed Colombia’s continued qualification to access FCL resources. The Colombian authorities have indicated they intend to continue treating the arrangement as precautionary and do not intend to draw on the line. The one-year arrangement for Colombia of SDR 6.966 billion (about US$11.13 billion) was approved on May 11, 2009 (See Press Release No. 09/161). Colombia was the third country to gain access to an FCL, following Mexico and Poland. The IMF designed the FCL for countries that have a history of sound macroeconomic policies and institutional frameworks. The FCL is designed to help countries’ crisis efforts by providing the flexibility to draw on the credit line at any time. The FCL was created as part of an overhaul of the Fund’s lending framework this spring (see Press Release No. 09/85 and Public Information Notice 09/40). Following the Executive Board discussion of Colombia, Mr. John Lipsky, First Deputy Managing Director and acting Chairman of the Board, made the following statement. ”Last May, at a time of heightened global uncertainty, the IMF Executive Board approved an FCL arrangement for Colombia to serve as additional balance of payments protection, providing further room for the authorities to pursue countercyclical policies in the context of strong institutional policy frameworks. Developments since the FCL approval have been generally positive, financial market conditions have improved and perceptions of tail risks to the balance of payments have subsided. ”The upturn in the global environment has improved the outlook for the balance of payments and economic activity. Exports and remittances have performed better than anticipated as commodity prices recovered faster than expected. Roll-over rates, in particular for the public sector, also have been higher than previously anticipated. Against this background, economic recovery is taking hold, and growth for the year is expected to remain positive. ”Colombia’s very strong institutional and policy frameworks provided scope to support domestic demand, with prudently expansionary macroeconomic policies. Since the FCL was approved, monetary policy has been eased further, while inflation expectations remained anchored; the exchange rate has continued to be an effective shock absorber; fiscal policy has helped sustain domestic demand, in particular through an increase in public investment; and, the financial system has continued to show resilience in the context of effective financial sector supervision. Looking ahead, monetary policy will continue to be guided by the inflation targeting framework and fiscal policy by a medium term framework, which should allow fiscal consolidation to restart by 2011. ”Against this backdrop of very strong policy frameworks and actions, the Executive Board today reaffirmed that Colombia continues to meet the qualification criteria for the FCL. Accordingly, access to resources under the FCL—which the authorities intend to continue to treat as precautionary—will remain available as envisaged through May 2010,” Mr. Lipsky said. Washington, D.C. 20431 USA, October 28, 2009
The Banco de la República has fixed the inflation target for 2010 in the long term range, announces the purchase of dollars and TES as a mean of maintaining end of the year liquidity and keeping the benchmark interest rate unchanged. In their meeting today, the Board of Directors of the Banco de la República agreed that the inflation target for 2010 would be that of the long term target. Consequently, the inflation target will be the 2% to 4% range with 3% as the precise target for legal purposes. The Board thinks that for the time being economic conditions will allow inflation to stay within the long term target range which will contribute to anchoring inflation expectations at that level. A low, stable inflation is the best contribution that monetary policy can make to the sustained growth of the economy, employment and national competitiveness. The adopted inflation target takes into account the following:
After evaluating the available information, the Board decided to keep the base rate unchanged for expansion auctions. This will remain at 4%. The Board anticipates that it will be possible to reach the inflation target set for 2010 without upward pressure on the benchmark interest rate in the near future. The Board also decided that most of the end of the year monetary expansion will be dealt with the purchase of dollars and TES to the amount of three trillion pesos. The rest will be provided through a reduction in the deposits that the General Treasury keeps at the bank and through repos. The Board will continue to carefully monitor the international situation, the performance of and projections for inflation and growth and reiterates that monetary policy will depend on the new information that is available. Bogota, October 23, 2009
The Banco de la República reduces its intervention interest rate by 50 basic points In its meeting today, the Board of Directors of the Banco de la República decided to reduce its intervention interest rate by 50 basic points. In this way, the base rate for expansion auctions will be 4%. The decision resulted from the following considerations: Annual inflation for the consumer fell in August for the tenth consecutive month and reached 3.13%. The indicators for basic inflation (that which excludes the prices of the most volatile products, like foodstuffs) continued to fall. Inflation expectations are near the long-term target range set by the Board (between 2% and 4%). Lower inflationary pressures continue to be the case, as the result of several factors: 1) the weakness of internal and external demand; 2) lower inflation expectations; and 3) a reduction in the prices of basic products with regard to the maximum level reached in 2008; and 4) the appreciation of the peso. In consequence, the Board foresees that the end of the year will find annual inflation near 3.5%. The results for the growth of the GDP in the second quarter met expectations, especially in the strong growth of civil works. For its part, the performance of consumption in homes and private investment was lower than what was forecasted. The expansive monetary policy has allowed for a consistent reduction of the deposit and placement interest rates. The Board of Directors expects this trend to continue and to stimulate economic growth in an ambit characterized by a healthy financial system, in line with the improvement of the indicators for confidence among consumers and businessmen. The reduction by 50 basic points of the intervention rate aims to strengthen the recuperation of the economy and reduce the possible negative effects of the restrictions on commerce which have appeared and of the appreciation of the peso. The intervention rate is expected to be stable in the near future. The Board will continue to undertake a careful monitoring of the international situation, which is beginning a gradual recovery, and of the performance of and projections for inflation and growth. The Board reiterates that future monetary policy will depend on the emergence of new information.
The Banco de la República maintains its intervention interest rate At its meeting today the Board of Directors of the Banco de la República (Colombia´s central bank), decided, by a majority vote, to keep its intervention rate unchanged. In this way, the base rate for expansion auctions will continue at 4.5%. The decision reflected the following considerations:
The Board will continue to undertake a careful monitoring of the international situation and the performance of and projections for inflation and growth, and reiterates that future monetary policy will depend on the emergence of new information. Bogotá, August 28, 2009
The Central Bank of Colombia Leaves its Intervention Interest Rate Unchanged In a meeting today, the Board of Directors of the Central Bank of Colombia decided, by a majority vote, to leave its intervention interest rate unchanged. As a result, the repo auction base rate will remain at 4.5%. Annual consumer inflation was 3.81% in June, having fallen for the eight month in a row. The decline was more than expected and is due, once again, to food and regulated prices. The core inflation indicators continued to decline and expectations for inflation in the medium and long term are near the ceiling of the long-term target range set by the Board (3%+/- one percentage point). Price performance is an indication that weak internal and external demand, lower inflation expectations and the drop in commodity prices compared to the high point in 2008 are being reflected in less inflationary pressure. The Board expects annual inflation to end the year below the floor of the target range (4.5%). The world economy is stabilizing. Several economic indicators in the United States suggest a break in the negative trend in output growth in that country. Economic conditions in Europe continue to weaken. Growth in China has strengthened considerably, which has had a favorable impact on commodity prices and on the Asian economies. Growth in most of the Latin American economies continues to exhibit a moderate reduction and a drop in inflation. The risk premiums of a number of Latin American countries have declined and, once again, the region’s major currencies have appreciated with respect to the dollar. The Colombian peso is no exception and is stronger than expected, fueled as well by the successful placement of Colombian corporate bonds on the international market to finance investment projects. The Board of Directors of the Central Bank is aware of the risks associated with peso appreciation in a climate where external demand is weak and will continue to keep an eye on the exchange market. The drop in lending and deposit rates has been persistent, thanks to the Central Bank’s intervention rate cut. The Board of Directors expects the reduction to continue and to stimulate economic growth. The performance of the financial system is healthy. The Board of Directors will continue to monitor the international situation carefully, along with the performance and forecasts for inflation and economic growth. It reiterated that monetary policy in the future will depend on whatever new figures become available. Bogotá, Colombia
The Central Bank of Colombia Lowers its Intervention Interest Rate by 50 Basis Points At a meeting today, the Board of Directors of the Central Bank of Colombia cut the Bank’s intervention interest rate by 50 basis points. This reduction places the repo auction rate at 4.5%. The way prices are performing confirms that less inflationary pressure is a reflection of the weakness in internal and external demand, lower inflation expectations and the drop in commodity prices compared to the high point in 2008. The Board expects annual inflation to decline appreciably in June and to end the year below the midpoint of the target range (5%). The international crisis has affected Colombia primarily by dampening consumer and producer expectations and slowing exports and remittances. Available figures for the second quarter show the expectations of the business community and consumers reveal signs of recovery for the second half of the year, even though economic activity remains weak. Lending continues to grow at a good pace, fueled largely by commercial borrowing, and the performance of the financial system is still healthy. The Board of Directors expects interest rates on business and household loans to continue to fall. The Board will continue to carefully monitor the international situation, inflation, economic growth, and the forecasts. It reiterated that monetary policy in the future will depend on the new figures that become available. June 19, 2009
The Banco de la República reduces its intervention interest rate by 100 basic points At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points. Thus, the base rate for expansion auctions will be 5%. The annual inflation rate for the consumer in April was 5.73%, the sixth consecutive monthly fall. This decline was seen in the prices of both foodstuffs and other basic household goods: what stood out was the deceleration of the prices of non-tradable and regulated goods. The indicators for basic inflation continued to decline during the month and inflation expectations approached the medium- and long-term target range (3%+/- one percentage point). The above confirms that the weakness of internal and external demand, the reduction of inflation expectations and the fall in the international prices of basic products compared with the maximum level reached in 2008 are strongly reflected in the smaller inflationary pressures. The Board believes that annual inflation will continue to fall in the following months and may end the year below the midpoint of the target range (5%). The available data on the growth of the product of countries in the first quarter of the year confirms the contraction of the world economy. In recent weeks, however, there have been signs of stabilization in the economy of the United States and of an important recuperation in China. In a similar manner the prices of assets in the industrialized and emerging economies have shown a positive performance. In Latin America the strong devaluation of currencies registered at the beginning of 2009 has corrected itself and risk premiums have fallen. In Colombia, the international crisis has mostly made itself felt through the deterioration of consumer and producer expectations and a slower dynamic of exports and international remittances. The latest data on industry, commerce and construction signal strong declines when they are adjusted for working days. Nevertheless, the financial system continues to show a healthy behavior. The intervention interest rate has been reduced by 500 basic points in about five months and its current level is clearly expansive. The interest rates on loans for companies and families are also expected to continue to fall. Monetary thrust, a less negative external environment and the greater dynamism of public investment allow for the hope of a gradual recuperation of economic growth beginning in the second semester of this year. On the basis of the information available up to now, the Board foresees that any eventual reduction of its interest rate in the future will be smaller than those observed recently. The Board will continue to undertake a careful monitoring of the international situation, the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá, May 29, 2009 (12: 54 p.m.)
The Banco de la República reduces its intervention interest rate by 100 basic points At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points. Thus, the base rate for expansion auctions will be 6%. The annual inflation rate for the consumer in March was 6.14%, the fifth consecutive monthly fall. This decline was seen in the prices of both foodstuffs and other basic household goods: what stood out was the deceleration of the prices of non-tradable and regulated goods. The indicators for basic inflation continued to decline during the month, while inflation expectations continued to lie within the target range set by the Board (5%+/- 1/2 percentage point). The reduction of inflation and inflation expectations confirm that the weakness of internal and external demand and the fall in the international prices of basic products are being reflected in weaker inflationary pressures. The Board believes that annual inflation will continue to fall in the following months and may end the year in the target range. The world economy deteriorated more than it was expected to in the first quarter of 2009. While some industrialized countries show signs of stabilization, it is expected that the negative effects of the world crisis will last throughout the year. In Latin America the generalized contraction of industrial production and the fall of inflation is an established fact. What stands out is that the strong devaluation of Latin American currencies registered at the beginning of 2009 has corrected itself. The available information shows a similar behavior in the Colombian economy, with a weaker dynamic in exportations and the consequent weakening of growth. The latest data on industry and commerce signal strong declines. However, the financial system continues to show a healthy performance. In these conditions, and taking into account the low level of utilized capacity, it is expected that the country´s inflation will continue to fall. The new reduction of the intervention interest rate, added to those realized since December 2008, have stimulated economic growth. It has been possible to make these policy decisions rapidly, considering that recent developments in Colombia and the world create a balance of risks that tends to be low, both for economic activity and inflation. The Board will continue to undertake a careful monitoring of the international situation, the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá, April 30, 2009 (11: 39 p.m.)
The Banco de la República reduces its intervention interest rate by 100 basic points At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points. Thus, the base rate for expansion auctions will be 7%. The annual inflation rate for the consumer in February was 6.47%, the fourth consecutive monthly fall. This decline was seen in the prices of foodstuffs. The indicators for basic inflation rose during the month, while inflation expectations lay within the target range set by the Board (5%+/- 1/2 percentage point). The reduction of inflation and inflation expectations confirm that the weakness of internal and external demand and the fall in the international prices of basic products are being reflected in weaker inflationary pressures. The Board now has more confidence that annual inflation will continue to fall in the following months and will lie within the target range at the end of 2009. The world economy continues to present a negative panorama. During the month international agencies like the IMF and World Bank issued projections of negative growths in the world economy in 2009. This fall has led Latin America to show a strong deceleration in economic growth and caused many central banks to reduce their reference rates. The devaluation of the region´s currencies registered between January and February was corrected in March, especially in Colombia, where the recent devaluation of the peso had been greater than that observed in other countries. The Colombian economy has shown a greater resistance to the world crisis despite the fall in external demand which is reflected in a weaker dynamic in exports and the consequent weakening of growth. The latest data on industry and commerce signal strong falls. In these conditions, and taking into account the low level of utilized capacity, it is expected the country´s inflation will continue to fall. The accumulated reduction of 300 basic points in the intervention interest rate have stimulated economic growth. It has been possible to make these policy decisions rapidly, considering that recent developments in Colombia and the world create a balance of risks that tends to be low, both for economic activity and inflation. The Board will continue to undertake a careful monitoring of the international situation, the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá, March 20, 2009 (12: 55 p.m.)
The Banco de la República reduces its intervention interest rate by 100 basic points At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 100 basic points. Thus, the base rate for expansion auctions will be 8%. The annual inflation rate for the consumer in January was 7.18%, the third consecutive monthly fall. This decline, greater than what was expected, was seen in most of the items of basic household goods and especially the foodstuff group. The indicators for basic inflation also fell during the month, and inflation expectations lay within the target range set by the Board (5%+/- 1/2 percentage point). The reduction of inflation and inflation expectations confirm that the weakness of internal and external demand and the fall in the international prices of basic products are being reflected in weaker inflationary pressures. The Board now has more confidence that annual inflation will continue to fall in the following months and will lie within the target range at the end of 2009. The world economy continues to present a negative panorama despite the strongly expansionist policies of many countries During the month the decline in growth of most of the developed and emerging economies was confirmed, as were the weaker inflationary pressures, which has allowed many central banks to reduce their reference rates. What stands out is that the currencies of the region have shown significant depreciations, especially in Mexico and Colombia. The new information that has become available confirms the weakening of productive activity in Colombia. The latest data on industry and commerce continue to register important declines, to which is added the effects of a greater deterioration of world activity on productive activity, in the form of lower exports and terms of trade, a decline in levels of confidence and more expensive capital flows. These conditions allowed the Board to reduce the intervention rate by a quicker rhythm than that employed in the previous two months, without this implying similar reductions in the future. In this way, monetary policy and the devaluation of the peso, insofar as they do not compromise the attainment of the inflation targets, have supported demand and the future growth of the economy. The Board will continue to undertake a careful monitoring of the international situation, the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá, February 27, 2009 (2: 30 p.m.)
The Banco de la República reduces its intervention interest rate by 50 basic points At today´s meeting the Board of Directors of the Banco de la República reduced its intervention interest rate by 50 basic points. Thus, the base rate for expansion auctions will be 9%. This decision was made despite the call for a greater reduction by some Directors. The rate of inflation for the consumer in December 2008 was 7.67%, which places it above the target set by the Board of Directors for this year. However, it is expected that the weakness of internal and external demand and the fall of the international prices of basic products will result in lower inflationary pressures in the course of 2009. The Bank trusts that consumer inflation this year will lie within the target range and continue its downward path towards the medium- and long-term objective. (3% +/- 1 percentage point). The world economy continues to be negative, despite the strongly expansionist policies of many countries. Most of the developed economies are showing a contraction of growth, while those of the emerging countries are also decelerating, in some cases in a drastic manner. As the world economy grows at a rate lower than its long term tendency and the international prices of basic products fall, world inflation will significantly fall in 2009. The new information that has become available confirms the weakening of productive activity in Colombia. The latest data on industry and commerce continue to register a decline greater than that expected by the Board in its previous meeting. To this situation are added the effects of a greater deterioration of world activity on productive activity, in the form of lower exports and terms of trade, a decline in levels of confidence and more expensive capital flows. The Board of Directors believes that conditions exist to continue reducing the intervention rate and consolidate the change of position in monetary policy that began in the last quarter of the previous year. The Board will continue to undertake a careful monitoring of the international situation, the performance and projections of inflation and growth, and reiterates that future monetary policy will depend on new information as it becomes available. Bogotá, January 30, 2009 (1: 55 p.m.)
The Central Bank of Colombia Lowers Its Intervention Interest Rate by 50 Basis Points The world economy is in a sharp decline. Most of the developed economies show signs of contraction, while the emerging market economies continue to grow, but at a slower pace. World inflation will be much less in 2009 insofar as the world economy expands at a rate below its long-term tendency and international commodity prices decline. If the exchange rate remains stable and an appropriate commercial policy is applied, particularly with respect to food imports, this reduction in international inflation should pass through relatively quickly to consumer prices in Colombia. The new figures at hand confirm the weakening in productive activity, predominantly in industry and commerce. Household and business confidence has been affected by external and internal factors. As a result, growth in internal demand is expected to be low. Added to this situation are the difficulties experienced by Colombia’s major trading partners and the drop in international prices for our main exports. Weaker growth in demand and output means less inflationary pressure. Annual consumer inflation declined in November from 7.94% to 7.73%. Although this is still a very high rate, it is expected to continue to drop towards the target range set for 2009, which is 4.5% to 5.5%. The last few weeks have witnessed an improvement in the region’s access to external financing. Long-term interest rates have declined and the loan portfolio held by the financial system continues to show momentum. The intervention rate cut consolidates a change in monetary policy stance that has been in the works for several months. The possibility of continuing to relax the country’s monetary policy in 2009 will depend essentially on whether inflation behaves as anticipated and on expectations with respect to the targets. The Board will continue to monitor the international situation carefully, as well as the forecasts for inflation and growth. It reiterated that monetary policy in the future will depend on whatever new figures become available. Bogotá, December 19, 2008
Inflation target set at 5% for 2009 and no change in the intervention interest rate The new inflation forecast takes into account the effects of the dramatic increase in food prices this year and in those for regulated goods and services. These price shocks, which were felt by every economy in the world, produced a sharp rise in inflation and made it impossible to meet the targets. The monetary policy decisions are intended to return inflation to a path that is convergent with the long-term target. As for 2009, a reversal or reduction in these relative price shocks and the cumulative effect of the monetary-policy adjustments made since 2006 are expected to reduce annual consumer inflation substantially. Announcement of the new targets demonstrates the Board’s commitment to meeting the long-term target. It also is a fundamental criterion with which to guide decisions on prices and wages in the economy. The Board of Directors also decided, by a majority vote, to hold the intervention interest rate steady. Consequently, the base rate for repo auctions will remain at 10%. It was noted that adoption of a less restrictive monetary policy stance will be possible if mid-term inflationary pressures subside. The Board reiterated its commitment to supply the liquidity the economy needs by the end of the year, through the mechanisms announced at its last meeting. The amount of liquidity will take into account the performance of the deposits the national government has with the Central Bank of Colombia. 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, November 21, 2008
The Board of Directors of the Central Bank of Colombia Appoints Mr. José Darío Uribe as Governor for the Term Starting on January 4, 2009 Mr. Uribe has been the Governor of the Central Bank of Colombia since 2005. He holds a degree in business administration from EAFIT University, a degree in economics from the University of the Andes, and a Master of Economics and a Ph.D. in Economics from the University of Ilinois. Bogotá, October 24, 2008
The Central Bank of Colombia holds its interest rate steady, reduces bank reserve requirements and adopts other measures to provide liquidity Annual consumer inflation at September was 7.57%, which is 30 b.p. less than the rate in August. This positive outcome was the result of lower food prices, since other items in the market-basket, such as regulated prices, exerted upward pressure. The core inflation indicators were up again, while inflation expectations remained stable. However, they were still above target. New information confirms that productive activity in Colombia is weakening, particularly in industry and commerce. The past month saw the international context deteriorate sharply. This has accentuated the restriction on credit worldwide and meant less growth for our major trading partners. Colombia’s productive sector is also feeling the negative effects of higher costs and the drop in demand. Asset prices remain extremely volatile and there has been an increase in risk premiums and external interest rates for all emerging market economies. In Colombia, this phenomenon has been reflected in peso devaluation. Food prices, peso devaluation and, eventually, elevated wage costs could keep total inflation high in the months ahead. However, the expectation is that weak demand and the recent decline in international commodity prices will mean less inflationary pressure in the future. To the extent that mid-term inflationary pressures continue to drop, it is appropriate to consider a shift towards a less restrictive monetary policy. Therefore, to help money and credit markets function properly and to facilitate a suitable supply of liquidity, the Board of Directors decided unanimously to facilitate liquidity management within the financial system during the months ahead by adopting the following measures.
The Board will continue to monitor the international situation closely, as well as inflation, economic growth and their forecasts. It reiterated that monetary policy in the future will depend on the new information becomes available. Bogotá, October 24, 2008
Banco de la República Holds Its Interest Rate Unchanged The Board will continue to carefully monitor the international situation, as well as the behavior and forecasts for inflation and growth. It reiterated that monetary policy in the future will depend on whatever new information becomes available. Bogotá, September 19, 2008
The Central Bank of Colombia Holds its Intervention Interest Rate Steady 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. Bogotá, August 15, 2008
Banco de la República Raises Its Intervention Rate 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% 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. The Board will continue to monitor the international situation closely, along with inflation and growth tendencies and their forecasts. It reiterated that monetary policy in the future will depend on the new information that becomes available.Bogotá, June 20, 2008
Banco de la Republica makes no change in its interest rates 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 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 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%.
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%. 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.
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
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.
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%.
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.
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.
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.
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.
The Board of Directors of Banco de la República Reports to Congress
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:
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. Bogotá, February 12, 2007 (4:15 p.m.)
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 1. Important Developments in 2006 Mr. José Darío Uribe highlighted three important developments with respect to the Colombian economy during 2006: a. Annual consumer inflation was 4.48% at December, which is on target with the objective set by the Board of Directors of Banco de la República. b. GDP growth in the first three quarters of 2006 (6.4%) surpassed all expectations. c. The Board of Directors reduce the monetary stimulus by raising intervention interest rates in April, June, August, September, October and December 2006 and in January 2007. On each occasion, the increase was 25 bp. As a result of the latest hike, the repo auction base rate was 7.75%. 2. Questions and Answers Why raise interest rates? The answer rests with the recent, anticipated trend in output and inflation. The increase in economic growth was concentrated in private GDP, which rose by 8.7%. The growth in domestic demand (9.7%) was fueled mainly by the acceleration in household consumption and the continued healthy increase in investments, particularly in machinery and equipment, and construction and buildings. Total exports also continued to perform well and accelerated in real terms. The coming quarters are expected to see no significant slowdown in the growth in aggregate demand, and GDP growth in the 4.4%-to-6.6% range is forecast for 2007. The reduction witnessed at the end of the third quarter of 2006 with respect to non-tradable inflation, excluding food items and regulated prices, did an about-face and ended the year at 4.75%, which is more than in 2005 (4.57%). Also, the average for the core inflation indicators rose from 4.25% in September to 4.51% in December. According to the Governor, the economy no longer needs the monetary stimulus implicit in historically low interest rates. The idea behind the interest rate hikes is to achieve maximum growth consistent with inflation that is converging toward the long-term target (between 2% and 4%). Why the rate hikes as of April 2006? They were necessary because it takes considerable time for a change in interest rates to affect demand in the economy (12 to 24 months). Decisions on whether or not to modify interest rates must be based on how inflationary pressures will develop one or two years in the future. If interest rates are not raised in advance, and inflation accelerates, the Central Bank will be obliged to sharply increase rates later. However, by raising them ahead of time, the overall increase will tend to be less and the economy will be more stable. 3. The Announcement in January At a meeting on January 26, 2007, the Board of Directors of Banco de la República announced a 25 basis point increase in intervention interest rates and large-scale intervention in the foreign exchange market “to curb the temporary pressure derived from the sale of assets in the public sector”. Are these measures contradictory? The answer is no, because monetary expansion created by the purchase of dollars is offset to keep short-term interest rates at a level that is compatible with the inflation target. Moreover, the concentration of monetization is a temporary and identifiable phenomenon. Once it occurs, both the exchange rate and expectations about its future performance should return to normal. The decision to continue the monetary normalization process ratifies the Board’s commitment to adopt the measures that are necessary to ensure convergence toward the long-term target for inflation. This gradual elimination of monetary stimulus does not affect the Colombian economy’s capacity for growth in terms of its potential. In fact, it contributes to the continuity and stability of that growth.
Bogotá, February 9, 2007 (1:45 p.m.)
José Darío Uribe, Central Banker of the Year, According to The Banker, a British Financial Magazine The Editorial Board of The Banker, a British magazine belonging to the The Financial Times Group, named José Dario Uribe as the American continent’s “Central Banker of the Year”. An annual event, this designation was made public in the January issue of The Banker, which began circulating last week at the World Economic Forum in Davos. In talking about the reasons why Banco de la República’s Governor was chosen for this honor, The Banker stressed the steady decline in inflation in Colombia and the adoption, some years ago, of an inflation-targeting strategy. According to the magazine, Banco de la República “has not just reduced inflation, but has consolidated its independence by confirming that its main objective is to keep inflation low.” The article mentions strict enforcement of the inflation target for 2006 (4.48%, a rate very close to the mid-point of the target range for that year), and indicates the target was achieved in the context of an economy that is growing above 6%. In quoting the Governor, the magazine highlighted that “ the inflation targets have become increasingly credible…Greater levels of transparency and accountability, coupled with an effective communication strategy, have allowed for a better understanding of monetary policy among market agents. This, in turn, has contributed to its effectiveness…With the success on these fronts, we hope to bolster growing public support for monetary policy decisions and to broaden the credibility and independence of the Central Bank.” Bogotá, January 29, 2007 (4:30 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. The base rate for repo auctions will increase from 7.50% to 7.75% as a result. The Board emphasized the fact that the inflation target for 2006 has been met (4.48%) and expressed confidence that the 2007 target will be met as well (in the 3.5% to 4.5% range). The Board also ratified its commitment to adopting the measures that are necessary to guarantee convergence towards the long-term target for inflation (3% ± 1 percentage points). A look at the state of the economy and its prospects suggest that growth in aggregate demand will continue to accelerate, with sizeable increases in private consumption, investment and credit. Coupled with the trend in core inflation indicators and the prices for certain non-tradable goods and services, this suggests the normalization process of the monetary policy should continue. The Board decided to intervene in the foreign exchange market in a major way, to curb the temporary pressure derived from the sale of assets belonging to the public sector. This measure can be implemented without jeopardizing the inflation target, thanks to coordination between the Central Bank and the Colombian government. Bogotá, January 26, 2007 (1:08 p.m.).
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