Board of Colombia's Banco de la Republica keeps benchmark rate at 3¼%

By Caroline Salls

Pittsburgh, Aug. 30 - The board of directors of the Banco de la Republica of Colombia kept the benchmark interest rate at 3¼%, according to a news release.

The board said economic growth in the advanced economies in the second quarter was slightly better than expected, but the expansion of many of the emerging economies of Asia and Latin America has been less than expected.

The total growth of Colombia's trading partners will probably be less than the value observed in 2012, according to the release. The board said something similar is expected in terms of trade, unless a recent uptrend in oil prices is maintained for an extended period.

The board said the volatility in the global financial markets has increased and has affected some emerging economies.

Specifically, the board said expectations of a less extensive monetary expansion in the United States increased interest rates on sovereign bonds considerably, starting from very low levels.

The board said the currencies of emerging economies have been devalued against the dollar, including the Colombian peso. The directors said it is possible that this trend will continue and contribute to a better performance of the tradable sectors of the economy and to a more balanced growth of those sectors.

New information

In Colombia, the bank said new information on foreign trade and domestic demand suggests GDP growth in the second quarter of 2013 was better than in the first.

According to the release, a technical team maintained its growth forecast for the second quarter in a range of 2.5% to 4.0%, with 3.4% seen as a likely figure.

For all of 2013 the range is expected to stay between 3.0% and 4.5%, with 4.0% seen as more feasible.

The board said it expects an increase in Colombian economic growth throughout the year to the extent the total expenditures react to previous monetary policy actions and programs the national government is running. However, the bank said downside risks to these projections have increased recently.

The growth rates of bank credit have stabilized at levels above nominal GDP growth, the release said, and the interest rates of different forms of credit are below historical averages, excluding credit cards.

The board said these general financial conditions may, however, have been adjusted as a result of rising external financing.

In July, annual inflation of 2.2% was somewhat lower than estimated, and the average core inflation remained relatively stable at 2.5%. The board said the average inflation expectations of analysts and those calculated from rates of public debt is similar to the inflation target of 3%.

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