Banco de la Republica de Colombia board keeps benchmark rate at 4˝%

By Caroline Salls

Pittsburgh, March 20 – The board of directors of the Banco de la Republica de Colombia decided to maintain its benchmark interest rate at 4˝%, according to a news release.

The board said the average growth of Colombia's major trading partners in 2015 remains low but somewhat higher than the level recorded a year ago.

The bank said the growth of emerging economies has decreased, and the advanced economies show gradual improvements in Europe and Japan and stability in the United States.

The 4.6% growth of the Colombian economy in 2014 was lower than the bank’s 4.8% projection, the release said, while 2013 growth was revised to 4.9% from 4.7%.

For its part, the board said the 3.5% expansion of gross domestic product in the fourth quarter of 2014 was in the lower part of the range of the forecast of the bank's technical team. For 2015, gross domestic product is expected to grow between 2% and 4%, with 3.6% as most likely percentage.

According to the release, the lower expected growth reflects the negative effect of the fall of oil prices on national income, exports and investment.

In addition, the bank said the devaluation of the peso reflects the overall strengthening of the dollar, the effects of the fall in the price of oil and the size of the current account deficit. The board said the devaluation is a boost to exports and the sectors that compete with imports and helps to dampen the negative impact of the price of oil on the fiscal and external accounts.

The bank said the devaluation also increases the short-term price of tradable goods.

Consumer inflation reached 4.36% in February, the release said, higher than the projected by the average of the market and by the bank's technical team.

The board said the increase was mainly caused by the greater rate of increase in food prices, which are expected to decline in the second half of the year, followed by the increase in the prices of tradable goods.

The board noted that the average measures of core inflation stood at 3.53%.

The bank said its technical team estimates that inflation will converge toward its goal beginning in the second half of 2015.

Specifically, the board said the inflation expectations of analysts through December 2015 are 3.65%.

As a result of the decline in oil prices and the permanent nature of the national income, the board said the domestic expenditure in the economy must be adjusted. The board will continue to monitor the size of that adjustment and its correlation with the level of income and long-term macroeconomic stability, the release said.

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