X
<

Colombia holds rates at 4.75%, supporting market growth expectations

PART:
1
Colombia holds rates at 4.75%, supporting market growth expectations PART 1 OF 1

Colombia holds rates at 4.75%, supporting market growth expectations

Colombia holds rates at 4.75%, supporting market growth expectations

Interested in GXG? Don't miss the next report.

Receive e-mail alerts for new research on GXG

Success! You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

The reference interest rate is a tool used by many central banks (the U.S. Fed included) to implement monetary policy. The rate refers to the overnight lending rate used by banks to borrow and lend money to each other, the Central Bank included, in the overnight market. A lower rate implies a lower cost of capital for the banks, which cascades down through the market participants and the corporations in the country. Lower rates imply a lower cost of capital, so companies have more resources to invest in growth therefore the stock market rises to reflect the growth potential. Higher rates have the opposite effect, with companies curving investment and hence slowing down growth and the stock market falling accordingly.

On October 26, 2012, the Colombian Central Bank held its lending rate steady at 4.75%. This action was in line with expectations in the market, as reflected in the Inflation Expectation Survey by the Central Bank. They survey showed that economists expect inflation to be close to 3% for 2012, which is right at the target rate. The Central Bank maintains an inflation targeting policy that aims to keep inflation between 2% and 4%.

While rates were unchanged, InterBolsa FTSE Colombia 20 ETF Profile (GXG) investors can interpret this action a sign of confidence in the Colombian market growth supported by low inflation expectations. Furthermore, economists believe that the rate may be cut to 4.5% in February, which would further fuel growth in the market as long as inflation stays within the accepted range.

X

Please select a profession that best describes you: