Monetary authorities start to broadcast randomly information about monetary supply increasing in the next days, they say that there is room to increase monetary supply but this information was broadcast without any support about the way and channels to do it. Through economic indicator called cycles one can point that this call can be taken as a bluff. First monetary supply depends on society liquidity preference coefficient and reserve bank coefficient, therefore Central Bank does not have total control on them, moreover the monetary supply cycle starts her downturn path, then it will difficult to reach a “real” monetary supply expansion. In addition, Central Bank and Superintendencia Financiera (government financial control institution) appear to work with ideal data, they do not care about financial coverture and fair income distribution due to difference between lending and borrowing rates is huge, about 8.6%, what sad work of these public institutions.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
Colombian Central Bank’s targets are to keep inflation rate low according to well economic development (Colombia Constitution Art. 371). The first target was reached successfully, inflation rate reached 2.44% at the end of 2012, however the second target is in doubt, Colombia faces an unemployment rate of 12.1% and unfair income distribution as many weekly notes have pointed. The unemployment rate is a structural problem, Colombia has a long run unemployment rate of 10.0%, it appears that Central Bank does not do her duties properly, the point is colombian Central Bank should look for well economic development and she does not. Moreover, monetary authorities broadcasted a local monetary expansion as must be but it appears that monetary authority forgot the coordination with private financial sector to make this monetary expansion works. This note points the problems due to lack of coordination between Central Bank and Private Financial sector.
Colombia has 68 financial institutions where 11 are public, all of them have many branches around Colombia and abroad. This financial institutions make easier profits through difference between lending and borrowing rates, this difference is about 8.6% that means a net profits of US$3.7 billions in 2012 (it takes into account private and public banks just, it does not take into account financial corporations and second floor public banks). Through this information it appears that private financial system in Colombia is taking by fools monetary authority and colombian society, they charge high interest rates while Central Bank reduces her lending rate, nowadays it is 3.75% while private banks charge a minimum rate of 12.35% for those preferential clients and 31.22% for those that face low income without reference letters.
Now one can be tempted to think that Colombia Central Bank is working with ideal data, they do not take real information about interest rates in Colombia and society financial’s needs. To calm down the serious situation they broadcast that they will increase the money supply but they do not care about saving preference cycle, money supply cycle and private banks intermediation. In the first case Colombians are in the cycle path where they start to save money as figure 1 shows, when the cycle goes up, then colombians save more money, this path started in 2012, then it put in doubt the effectiveness of monetary supply expansion.
Figure 1. Liquidity preference cycle in Colombia 1994-2012
(monthly data)
The second fact is the monetary supply expansion threat, from the point of view of serious monetary policy, this expansion is not credible, as one can view on figure 2 (red line), the monetary supply cycle is going to start the downturn path, then how can one believe the monetary authority’s broadcasts?, they can be bluffing just, what sad in this case, they take colombians as fools.
Figure 2. Money supply cycle in Colombia 1994-2012
(monthly data)
The last issue is the passive reaction from Central Bank and Superintendencia Financiara (government control financial office) about difference between lending rate and borrowing rate, this gap is unfair to reach a real income distribution, from my point of view this gap must be regulated as maximum value of 3%. Figure 3 shows the gap from these two interest rates, to highlight the authorities’ indifference about the rates difference since 1995.
Private and Central Bank lending rate in Colombia 1994-2013
(%, monthly data)
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