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

By Caroline Salls

Pittsburgh, March 21 - The board of directors of the Banco de la Republica de Colombia decided to keep the benchmark interest rate at 3¼%, according to a news release.

The board said recent data of economic activity in several regions of the world suggest that the recovery of growth will continue in 2014, but with a slight deceleration compared with previous forecasts.

The banks said the recovery in the euro area has continued at a modest pace, while the slowdown in some emerging economies has increased.

The board said foreign interest rates and the dollar outperformed the averages in 2013, and it is likely that a significant portion of these increases will be permanent, but reflect less expansive levels of global liquidity. The bank said a recent decision by the Federal Reserve and forecasts on the benchmark interest rate reaffirm this trend.

According to the release, increasing the weight of Colombian public debt securities in the reference portfolio of some international investors can offset to some degree the effects that global liquidity adjustment has on the exchange rate and interest rate market Colombia.

The board said annual output growth was 4.9% in the fourth quarter of 2013 and 4.3% for the year, up from a revised 4% rate for 2012.

Growth accelerated in the second half of 2013, especially driven by investment, the release said, and household consumption was maintained at growth rates near their historical average over the year.

On the supply side, the bank said the highest growth in the quarter occurred in the mining, agricultural, construction and social and personal services sectors, but industry remained weak.

The board said the recent growth of retail sales information, coffee production, energy consumption and further decline in unemployment suggest a strong dynamism of the economy so far this year.

However, a decline in consumer confidence in February, weak exports and manufacturing point in the opposite direction, the release said. The bank's technical team maintains a forecast of economic growth between 3.3% and 5.3% for 2014, with 4.3% as the most likely figure.

The bank said total credit growth stabilized in February at rates higher than the increase in nominal gross domestic product, and consumer credit growth has moderated, but mortgage lending has accelerated. Real interest rates remain at levels of credit that drive economic growth, the board said.

Meanwhile, the board said annual inflation rose in February for the third consecutive month and stood at 2.32%, within the target range. The average measures of core inflation continued to increase and reached 2.63%.

The board said one-year inflation expectations, as well as those derived from the roles of public debt with terms of less than five years, remain around 3%.

In addition, the board said it decided to continue the current program of purchases of international reserves for three months, accumulating up to $1 billion between April and June.

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