Banco de la Republica de Colombia’s board ups benchmark rate to 4¼%

By Caroline Salls

Pittsburgh, July 31 – The board of directors of the Banco de la Republica de Colombia decided to increase its benchmark interest rate by 25 basis points to 4¼%, according to a news release.

After reaching the goal of 3% faster than expected, the board said annual consumer inflation fell to 2.79% in June, largely as a result of change in the prices of food.

The board said the average measures of core inflation presented a similar behavior, and expectations of inflation remain close to or slightly above 3%.

According to the release, the average growth of the major trading partners of Colombia has been weaker than projected because of a sharp decline in the gross domestic product of the United States in the first quarter and slower growth of some countries in the region.

However, based on recent actual and financial indicators, the bank said it continues to project a more dynamic external demand in coming quarters.

In Colombia, the board said recent data have led to an upward revision in the projection of the growth of the economy in 2014. The bank said the growth of gross domestic product in the first quarter was higher than planned, driven in part by consumption and investment in construction of buildings and civil works.

The board said the good performance of these products will probably continue the rest of the year.

In addition, the bank said consumer confidence has improved, the consumer credit slowdown ceased, retail sales remained strong and the unemployment rate has shown a downward trend.

As a result, the board said the new range of growth forecast in 2014 is between 4.2% and 5.8%, with 5% as the most likely figure.

In addition, the bank said total demand has maintained strong growth with production capacity close to full employment, while inflation expectations have placed near or slightly above 3%.

The bank said all this occurred in an environment in which credit growth has increased and real interest rates of the loans are at levels that drive spending.

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