Subsidized mortgage rates for Colombia’s housing sector are the most important factor for strong growth in 2013, concluded Colombia’s finance minister on Friday, after a meeting with the central bank.
“This measure alone has the most impact on GDP growth this year. We estimate that the impact [will be] at least around 0.3 points of additional growth,” said Finance Minister Mauricio Cardenas, at the end of the Central Bank board meeting.
Central Bank president Juan Dario Uribe, along with a seven-director board that governs Colombia’s central bank, made the decision to keep the interest rate at 3.25%. Keeping interest rates low is one instrument that Colombia has used to make lending accessible. Subsidies, a less discussed instrument, is another.
In an Inter-American Development Bank report, Economists Marc Hofstetter, Jorge Tovar, and Miguel Urrutia explained how in 2009 the ministry of finance implemented mortgage subsidies in order to fend off symptoms of the global financial crisis.
“The subsidy would cover up to five percentage points of the agreed interest rate for a seven-year period. This subsidy was originally implemented as a counter-cyclical policy; the goal was to boost the construction sector during the recession,” said the report.
The report found that subsidized rates in mortgage lending boosted the number of loans for low-income borrowers by 36% and 38% for non low-income borrowers.
But at the same time, the real market interest rate increased by more than one percentage point.
Earlier this month International Markets Analyst at Acciones y Valores Cristian Lancheros told Colombia Reports that the financial sector has resisted falling in line with central bank rates.
Finance Minister Mauricio Cardenas has been vocal about the financial sector’s participation, saying that lenders must help in proportion to the central bank in order to see growth.
The ministry of finance has still maintained its projection of 4.8% GDP growth for the year 2013.
- Subsidio a la tasa de interés de créditos hipotecarios es la medida que tendrá más impacto en el PIB este año (Ministry of Finance Press Release)
- Effects of a Mortgage Interest Rhttp://www.iadb.org/en/publications/publication-detail,7101.html?id=20762%20&dcLanguage=en&dcType=Allate Subsidy: Evidence from Colombia (Inter-American Development Bank Report)