Notes on the interest rate of the CDT.

As of march 23, according to the entity in charge of supervising financial institutions, the interest rates of the CDTs issued by banks registered a value of 13.6% for the 180 day term and 13.9% for the 360 day term. But banks have considerable dispersion among themselves in the levels of those rates. In effect, large banks such as Davivienda and Scotiabank have rates of 12.2% and 11.9% on 180 day CDTs, while small banks such as Bancamía and Serfinanza have 16.2% and 15.9%. Another large bank like Bancolombia 13.9% and another small one like Banco Mundo Mujer 15.8%

Interest rates for a longer term such as 360 days, register levels of 12.5%, 12.7% and 13.9% in the large banks Davivienda, Scotiabank and Colombia while in small banks such as Bancamia, Serfinanza and Banco Mundo Mujer 17.5%, 15.9% and 16.1%.

It is clear that the large banks have reduced the interest rates of the CDT more quickly compared to the small ones since in the month of february to the 28th the rates were as follows. For the 180 day CDT, Davivienda, Scotiabank and Colombia presented 14.6%, 15.4% and 14.9% which, compared to the rates as of march 23, show that the latter have fallen 2.4%, 3.5% and 1%, while Bancamía , Serfinanza and Banco Mundo Mujer reached 16%, 16.5% and 16.5% on that same date on february 28, which when compared with those of march 23, the latter have decreased (in Bancamia, on the contrary, it increased 0.2%) 0.3% in Serfinanza and 0.6% in Banco Mundo Mujer.

In less than a month counted from february 28 to march 23, the reductions in CDT interest rates are far greater in large banks than in small ones. One of the explanations for this are the macroeconomic projections issued by think tanks and analysts in the sense that at the end of the year both inflation and the central bank interest rate will register lower levels than those of december of the previous year. At the end of this year, they expect inflation of 9% and a central bank rate of 11%, therefore, given that the deposits of large banks in CDT are much higher than that of small ones, they present a greater reduction in rates recognized for such deposits.

Another explanation is related to the drop suggested and accepted by the large banks to reduce interest rates, especially those for credit cards, but which could be extended to other credits (housing, consumer, commercial and microcredit, which in sum are more than 94% of the total) which may have some incidence on the profits of the banks, therefore a greater drop in the CDT rates, as the large banks did, would offset the reduction in the intermediation margin that could occur with that drop in the interest rate of some credits and thus maintain the level of profits of the banking sector without significant alteration.

With the foregoing, it is possible that at the end of the year the interest rates of the CDTs of the large banks end up below 9%, which is the expected inflation figure and of course below the rate of the central bank estimated at 11%.

Investors will be able to maintain and renew their investments in CDT during the course of this year with rates that continue to be higher than those of the years 2.019 and its previous decade that did not exceed 5% or 6% since currently, as has been mentioned, there are rates of 12 and 13% in large banks and will gradually decrease in the coming months to approximately 8% or 7% at the end of the year.

However, in those years 2.019 and before, inflation also maintained records below 5% and therefore the CDT covered these records with their interest. On the contrary, since the previous year and in the current one, there is the economic concept of monetary illusion in the investors who, during the last months of the previous year and until january of this year, maintained investments in CDT with increasing interest rates that reached up to 15 %, a high enough level to cover the inflation that ended the year at 13.12%, but later the CDT rates, as previously shown, fell (and will continue to fall) and are already below inflation, which reached 13.28% in february and for march the specialists expect only a slight decrease, which is higher than the interest generated by the CDT.

Therefore, the presence of monetary illusion in investors continues, but it is diminishing due to the downward behavior of the CDT interest rate, which responds more to maintaining or increasing the intermediation margin on the part of the banks, as explained before, decreases that are greater compared to the volatile reduction in inflation that is expected to start in march, when CDT interest rates have been falling for two months and will be higher in the second semester.

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Today ( march 28) in terms of world markets, the stock markets are growing in Europe and in the United States they behave mixed due to optimism and caution over the support measures for banks with financial problems known two weeks ago.

The price of oil also rises influenced by sufficient support for banks that had problems and by the expectation of greater demand from China. The WTI reaches 73 dollars per barrel.

In Colombia, the stock market rose 0.7% and the peso appreciated due to greater investor optimism and also in line with the increase in the price of oil. It closed the day at 4.678 pesos per dollar against a TRM for today of 4.742.