Colombia

Colombia[COP]

...

Institutional setup of monetary policy decisions and operations

Policy decision body, size and composition The board of directors is composed by 5 board members, the Minister of Finance and the Governor of the Central Bank
Major mandates 1 To keep inflation low and stable and to achieve the highest sustainable level of output and employment. In doing so, monetary policy fulfills the constitutional mandate to maintain the purchasing power of the Colombian peso.
Decision-making process Majority
Frequency / length of meetings Monthly
Frequency of announcements 8 times a year the Board of Directors make a decision on the monetary policy rate, at the beginning and end of each quarter (January, March, April, June, July, September, October, December).
Main policy target Policy target: Inflation target of 3% with a range between 2% and 4%, measured as year-over-year change in total CPI. Policy tool: Monetary policy rate (overnight), Market overnight rate (IBR) as close as possible to MPR

Overview of key features

Key policy rate Reference rate
maturity (days) 1
Operating target Interbank overnight non-collateralized rate
maturity (days) 1
Standing facilities Lending, deposit
Corridor width (bp) 200
Reserve requirements Yes
maintenance period 14 days
Main operation 2 RP
functions Liquidity injection
maturity (days) Normally 7 days and 1 labor day, but it can be longer. So far the longest period has been 1 year.
regular interval Yes
frequency Daily
Overall frequency Daily
Discretion left to operational desk No discretion left to operational desks for standard monetary policy operations. Some discretion left to operational desks for the implementation of certain asset purchase operations within the set of non-standard monetary policy measures.
Key policy signals via
announcement
keynote tender
standing facility
other

Monetary policy communication

Explicit use of forward guidance No
Timing / media of policy announcement Press release and press conference immediately after board meeting. Both transmitted through bank website.
Policy announcement and documents Target policy rate and press release.
Explaining policy decisions All eight policy decisions per year include a press release. Four of these releases later are accompanied by a detailed Monetary Policy Report and a Governor press conference. In addition, once per semester (march and july) the Board of Directors presents a Report to the Congress of Colombia.
Dissemination of minutes (timing / media) Yes. Two labor days after board meeting.
Content of minutes Description of economic conditions and discussion over MP decision.
Publication of forecasts 3 Included in the Monetary Policy Report (four times per year).
Publication of projected path of policy rate 4 The Central Bank doesn't present its own interest rate forecast; however, it provides some market-based measures (based on the Overnight Indexed Swaps) included in a report published alongside the minutes.

Reserve requirements: ratios and size

Main functions served It used to serve as a liquidity buffer for credit establishments, now it’s under revision.
Domestic currency Yes
Foreign currency No
Average Yes 5
Required reserves COP 35.22 bn 6
Required reserve as % of GDP 2.99% (as a percentage of annual GDP as of 2021 – Q4)
Actual reserves COP 36.14 bn 7
Actual reserve as % of GDP 3.07% (as a percentage of annual GDP as of 2021 – Q4)

Main features of reserve requirements

Averaging Yes, over maintenance period
Carry-over No
Type Lagged
Maintenance period 14 days
end (day) Tuesday
Calculation period 14 days
end (day) Tuesday
Lag before maintenance 7 days
Vault cash Yes
restrictions No
Remuneration No
average rate 0%
marginal rate 0%
Framework last changed Apr-Jul of 2020 8

Liquidity position and forecasting

Structural Position Surplus
Most volatile factor(s) Government deposits at the central bank
Most unpredictable factor(s) Government deposits at the central bank
Forecast horizon(s) 4 months
Frequency Daily
Frequency of revision Daily
Forecast published? No

Standing facilities: lending / market ceiling

Name Lending facility
Form Repo
Pricing method Fixed rate: Reference rate + 100bp
Maturity 1 labor day
Access limited by/to No borrower limits. Access to credit institutions, Bancoldex (development bank), broker dealers (participants of the government’s market making program) and asset managers of open-ended funds on behalf of those funds. 9
Function(s) Set upper limit to interbank interest rate

Standing facilities: deposit / market floor

Name Deposit facility
Form Deposit
Pricing method Fixed rate: Reference rate - 100 bps
Maturity 1 labor day
Access limited by/to No limits. Access to credit institutions, Bancoldex (development bank), broker dealers (participants of the government’s market making program), asset managers of open-ended funds on behalf of those funds, government special institutions, asset managers (proprietary account, on behalf of third parties or managed funds), pension funds (proprietary account, on behalf of third parties or managed funds), securitization companies and insurance companies, Icetex (development bank), deposit insurance corporation, especially foreign exchange and financial intermediation service companies, capitalization companies, companies specializing in electronic deposits and payments and central counterparty risk clearinghouses. 10
Function(s) Set lower limit to interbank interest rate

Open market operations: repo or reverse repo

Name/Type 11 RP* 12
Maturity Normally 7 days and 1 labor day, but it can be longer. So far the longest period has been 1 year.
Frequency Daily
Pricing method Auction. Minimum rate: reference rate, maximum rate: reference rate + 100 bps
Access limited by/to Borrower limits only for repos backed with bank loans.
- RP backed with public debt: credit institutions, Bancóldex (development bank), broker dealers (participants of the government’s market making program) and asset managers of open-ended funds on behalf of those funds.
- RP backed with private debt: same counterparties of RP backed with public debt,
government special Institutions, asset managers (proprietary account, on behalf of third parties or managed funds), pension funds (on behalf of severance pay funds), securitization companies and insurance companies.
- RP backed with bank loans: credit institutions, Bancóldex (development bank) and government special institutions. 13
Function(s) Provide required liquidity

Open market operations: central bank bills

Name Banco de la Republica´s securities* 14
Total issuance Never issued
Maturity Announced before the auction
Restrictions on possible maturities Announced before the auction
Pricing method Single price auction
Access limited by/to Not defined yet.
Discretion left to operational desk Not defined yet.

Open market operations: FX swaps

Maturity 30, 60, 90, 180 or 365 days.
Frequency Discretionary. It was used between march and June of 2020 as one of the fx liquidity measures taken by the central bank to face the impact of the COVID-19 pandemic.
Pricing method Single price auction with discretionary upper bounds for the forward leg. FX swap window for FX clearing houses. Pricing will be announced on the tender and will be a higher price with respect to market.
Access limited by/to Auction: Banks, financial corporations, and finance companies, financial cooperatives (must be authorized as Exchange Market Intermediaries – EMI - and their capital base must be equal to the minimum amount to be achieved in order to organize a financial corporation), Pension Funds. All entities must have standing instructions from the Central Bank. Also, Ministry of Finance and Public Credit. Window: FX Clearing houses. 15
Function(s) To provide USD liquidity under a credit crunch scenario.

Other significant liquidity management means

Name/Type 16 OT: 1. Outright sale of local public securities; 2. Outright purchase of local public securities; 3. Outright purchase of local private securities.; 4. Issuance of government bonds to constitute a deposit at the Central Bank; 5. Remunerated Term Deposits. 17
Form 1. On electronic system owned by the CB; 2. On electronic system owned by the CB; 3. Auction; 4. Auction; 5. Auction
Frequency As required
Maturity As required
Pricing Method 1. Market price; 2. Market price; 3. Multiple price auction 4. Single price auction 5. Single price auction with a maximum interest rate. I.e. for 7-day deposits the maximum rate is MPR - 4 b.p.
Access limited by/to 1. Credit institutions, Bancóldex (development bank), broker dealers (participants of the government’s market making program), asset managers of open-ended funds on behalf of those funds, government special institutions, asset managers (proprietary account, on behalf of third parties or managed funds), pension funds (proprietary account, on behalf of third parties or managed funds), securitization companies and insurance companies, Icetex (development bank), deposit insurance corporation, especially foreign exchange and financial intermediation service companies, capitalization companies, companies specializing in electronic deposits and payments and central counterparty risk clearinghouses.
2. Same of 1 without counterparty risk clearing houses.
3. Same of 2 without capitalization funds. Pension managers only on behalf of severance pay funds.
4. Participants of the government’s market making program.
5. Same of 1.
Function(s) 1.To absorb liquidity; 2. To inject liquidity 3. To inject liquidity 4. To absorb long term excess liquidity; 5.To absorb short term excess liquidity.

Settlement systems and intra-day liquidity facilities

Settlement system Real time gross settlement
Intra-day liquidity facility Yes, intra-day repo
Charge 0.10%
Foreign currency settlement system No
CLS participation by banks No
Other settlement system(s) Public debt securities settlement system 18

Collateral

Standing facilities: List of eligible collateral Public debt securities (denominated in foreign and local currency) and Banco de la Republica´s securities. Banco de la Republica may activate acceptance of private debt, foreign government securities and bank loans. 19
Standing facilities: Discretion of central bank on collateral 20 The Central Bank can choose among the approved collateral securities, depending on the juncture.
Open market operations: List of eligible collateral Public debt securities (denominated in foreign and local currency) and Banco de la Republica´s securities. Banco de la Republica may activate acceptance of private debt securities and bank loans. 21
Open market operations: Discretion of central bank on collateral 22 The Central Bank can choose among the approved collateral securities, depending on the juncture.

Dissemination of operational information: liquidity forecast

Forecast published? No
Channel(s)
Timing
Remarks

Dissemination of operational information: open market operations

Volume and price published? Yes
Channel(s) Website
Timing Shortly after results

Dissemination of operational information: standing facilities

Lending facility usage: Channel(s) Central Bank website
Lending facility usage: Timing Shortly after results
Deposit facility usage: Channel(s) Central Bank website
Deposit facility usage: Timing Shortly after results

Other information dissemination

Type (i) FX intervention; (ii) Amount of outright purchases/sales; (iii) Issuance of government bonds to constitute a deposit at the Central Bank; iv) Remunerated Term Deposits
Channel(s) Website
Timing (i) Shortly after results if done through auctions. If done in a discretionary manner, the following month; (ii) Following month in July and January the composition of the portfolio is disclosed (6 month lag); iii) Shortly after results; iv) Shortly after results

1 Describe as well the legal status of the mandate and involvement of government

2 RP = reversed purchase (repo, inject liquidity), RS=RRP=reversed sale (reverse repo, absorb liquidity), RT=reversed transaction (repo or reverse repo).

3 For instance, economic and inflation forecasts related to policy decision.

4 If applicable, describe the publication of any fan-charts or uncertainty bands around the forecasts/projections.

5 Bi-week period

6 As of August 2 of 2022

7 As of August 2 of 2022

8 In April 2020 the Board of Directors decided to inject permanent liquidity to the economy by reducing reserve requirements on current accounts, savings accounts, Certificates of Deposit (CD) of less than 18-month maturities, among others. In July 2020 (effective in November 2020) the reserve requirements on non-negotiable Certificates of Deposit (CDAT in Spanish) were changed.

9 In March of 2022 eligible counterparties were set to the ones mentioned.

10 In March of 2022 eligible counterparties were set to the ones mentioned.

11 RP=Reversed purchase (“repo”), RS=RRP=Reversed Sales (“reverse repo”), RT=Reversed transaction (RP or RRP).

12 * RS are not currently available. Transitory contraction is made through remunerated term deposits, which are uncollateralized.

13 In March of 2022 eligible counterparties were set to the ones mentioned.

14 *Banco de la Republica has never issue its own bills. Permanent monetary contraction is implemented with outright transactions.

15 Pension funds were included in 2020.

16 OT = Outright Transaction, DB = Direct Borrowing, DL = Direct Lending.

17 Mechanism number 4 has not been used by the central bank since 2014

18 Intra-day repo may be converted to overnight, where the charge becomes the reference rate + 200 bp.

19 Peace, green and solidarity bonds are included on public debt securities.

20 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.

21 Peace, green and solidarity bonds are included on public debt securities.

22 Discretion of the central bank to expand collateral types, and list of additional collateral types that the central bank can take on a discretionary basis. Also, additional information such as delays required if discretionary collateral changes.