Following is the text from Colombia’s Central Bank statement on the benchmark interest rate decision. The translation to English was provided by the Central Bank on its website.
Banco de la Republica (the Central Bank of Colombia) lowers by 25 basis points its intervention interest rate
At its meeting today, the Board of Directors of Banco de la Republica, the Central Bank of Colombia, lowered its intervention interest rate by 25 basis points. In this manner, the base rate for expansion auctions will be 4.75%. This decision was based on the following factors taken into account:
Results for the second quarter confirm the weakening of world growth. The Eurozone GDP fell as compared with the level observed in the first quarter, and economic growth in the United States and some emerging countries in Asia was slightly weaker. International financial markets are still volatile, and confidence continues to be affected by risks originating in Europe.
The latest foreign trade and industry figures at world level do also suggest the increasing transmission of European problems into the rest of the economies. This heightens the likelihood of an even weaker world growth in the future.
The international prices for some basic agricultural products have risen as a result of droughts in producing countries. Likewise, the oil price rose after having experienced a reduction in the second quarter of the year.
In Colombia, the value of commodity exports of mining origin continued to slow down; its annual growth of 0.7% can be explained by lower international prices. In turn, agricultural exports as well as those of the other sectors, particularly in the industry, fell 21.4% and 3.8% respectively in annual terms.
Although industry and commerce figures in June were slightly better than expected, growth was low. In the same month, the Fedesarrollo industry survey reflected deterioration again in confidence and order volume, as well as an increase in stock. Consumer confidence rose slightly in July and is standing above the average observed in 2011.
Credit growth is still slowing down, thus reducing the risk of financial imbalances.
The recent moderation has been concentrated in household credit, which continues to grow at high rates. Real interest rates are at levels close to the average observed since 2000, and the interbank interest rate is standing above the intervention interest rate.
The observed and expected inflation in December 2012 fell at rates close to 3%. Core inflation measures remained relatively stable, and the average of the four indicators calculated by the Bank stood at 3%.
All term inflation expectations declined, while those deriving from the 2, 3, and 5-year Treasury Bonds - TES - stood around 2.4%.
According to the assessment of the current balance of risks, the Board of Directors deemed that reducing the intervention interest rate is appropriate. The new information will allow for introducing future monetary policy actions concerning both the development of events in the advanced countries and their impact on confidence, global demand and international prices of basic goods, as from internal dynamics.
In addition, in order to provide more the economy with more permanent liquidity, the Board has decided that, in the remainder of August and in September it will by US$700 million through the daily auction mechanism with minimum price of US$ 20 million.
The Board restates that Banco de la Republica has both the proper tools and sufficient resources to meet local and foreign currency liquidity needs regularly required by the economy as well as those likely to occur in an environment of international financial turmoil.
The Board will continue to keep close watch on the international situation as well as on the behavior and projections of inflation, growth, and the asset markets, while reiterating that the monetary policy will depend upon the new information available. Bogotá, August 24 2012
SOURCE: Banco de la Republica http://www.banrep.gov.co/
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