Banco de la Republica de Colombia's board raises benchmark rate to 3½%

By Caroline Salls

Pittsburgh, April 25 - The board of directors of the Banco de la Republica de Colombia decided to increase its benchmark interest rate by 25 basis points to 3½%, according to a news release.

The board said current macroeconomic stability and a convergence toward the long-term inflation goal support a position of slightly less expansionary monetary policy.

In addition, the bank said a gradual and timely adjustment of the monetary policy reduces the need for sharp adjustments in the future and ensures macroeconomic stability.

Given these factors and the lags with which monetary policy actions affect inflation and growth, the board said it considered it prudent to increase the interest rate.

The board said inflation and the average of the four measures of core inflation continued a convergence to 3% in March, while inflation expectations have fluctuated around the goal for long-term inflation.

The bank said the macroeconomic forecast indicates that domestic demand will continue to grow steadily, and the economy will approach full use of its production capacity in 2014.

Meanwhile, the board said the seasonally adjusted unemployment rate has maintained a downward trend and reached the lowest level seen so far in this century.

To the extent that inflation has been converging to the 3% target, the board said different real interest rates have fallen. Total credit growth accelerated slightly in March driven by the performance of commercial and mortgage loans, according to the release.

The bank said risk premiums of several emerging economies have recently declined, the local currency financial assets have been valued, and their currencies have appreciated against the dollar.

These changes have been more pronounced in Colombia, according to the release, especially in the public debt market. The board said this is a result of higher foreign capital inflows.

The board said recent global economic activity data suggests that the global recovery will continue in 2014.

In the United States, the bank said the latest figures indicate that economic activity may maintain a gradual recovery, while the expansion in the eurozone will continue at a modest pace.

The board said the slowdown in some emerging economies could grow, and it is likely that the average growth of trading partners for Colombia in 2014 will be similar to the 2013 increase.

According to the release, liquidity in the United States is expected to adjust slowly. The expansionary monetary stance in other advanced economies is also expected to persist for an extended period, the board said.

The bank said foreign interest rates have not changed significantly and remain low but above the average levels observed in 2013.

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