BOGOTA: Colombia's central bank raised the benchmark lending rate 25 basis points to 3.75 percent on Friday, an increase aimed at containing a recent rise in still-low inflation as economic growth gathers momentum.
The following is a translation by Reuters of the bank's statement accompanying the decision: The Board of the Central Bank in its meeting today decided to increase the interest rate by 25 bps to 3.75 percent.
For this decision, the Board took into consideration the following aspects: Inflation in April continued its expected convergence toward its target of 3 percent.
On their part, inflation expectations for the year by economic analysts and those implicit in the roles of public debt increased from last month.
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 seasonally adjusted unemployment rate maintained its downward trend. To the extent that inflation has been converging to the 3 percent target, different real interest rates have fallen. Between April and May, total credit growth continued to accelerate, driven by the behavior of commercial and mortgage loans.
Risk premiums in several emerging economies continue to decline and their currencies have appreciated against the dollar. This phenomenon was more pronounced in the case of Colombia, so the bank decided to use the full quota of authorized intervention in March.
GDP growth of the US in the first quarter was revised down. This has been attributed to temporary factors related to adverse weather conditions.
In the Euro area, GDP expanded at a modest pace in the first quarter, while the growth of some of the major emerging economies has slowed.
Therefore, it is expected that the average growth of trading partners for Colombia in 2014 was similar to that observed in the previous year and the average of the terms of trade remain high.
Expectations of a slow adjustment of liquidity in the United States are maintained. It is also expected that the expansionary monetary stance in other advanced economies persists for an extended period.
Foreign interest rates declined in the last month and remain low but above average levels observed in 2013. In those circumstances, the Board considers that the current macroeconomic stability and inflation convergence towards the long term goal are consistent with a further increase in the interest rate of the Banco de la Republica.
It further considers that the gradual adjustment of the expansionary stance of monetary policy reduces the need for sudden changes in the future and ensure macroeconomic stability.
Given all this and the lags with which monetary policy actions affect inflation and growth, the Board considered prudent to increase by 25 basis points interest rate intervention.
The Board will continue to carefully monitor the performance and projections of economic activity and inflation in the country in asset markets and the international situation. Finally, it reiterates that monetary policy will depend on the information available.
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