only a portion of this increase is due to temporary agricultural supply conditions attributed to el nino weather. demand shocks that threatened persistent hikes in future inflation and imbalances that can jeopardize the sustainability of economic growth have been responsible for the rest. other evidence revealed an excess of demand above supply in colombia, which, although moderate, is still visible. the various statistical techniques used to analyze the difference between actual and potential output ( the gdp gap ) all suggest the former exceeds the latter by somewhere between 1 to 2. 5 percentage points. most of the capacity indicators are close to historically high levels. another very straightforward piece of evidence is by how much our current gdp growth rates lie above historical averages. this year, the annual growth rate during the first semester was 7. 6 %, which is the highest for the first 6 months of a year since we have had quarterly data at our disposal. a situation where economic growth surpasses its historic average and the gdp gap that keeps positive represents a serious risk of inflation. this demand pressure is also visible in our imports. nominal imports in dollars have increased at an average annual rate of 34 % since 2006. this is much higher than the 7. 7 % average growth observed since 1994. nominal exports in dollars have soared as well, but less than imports. this means the current account deficit has risen every quarter since 2006. in summary, our challenge in the second half of 2006 and the first of 2007 was to deal with inflationary demand. since april 2006, our monetary policy response has been to raise the banco de la republica ’ s intervention interest rates by 325 basis points. as of may 2007, these hikes have been supplemented with a 24 % average marginal reserve requirement on liabilities in the banking system. what i want to emphasize is that in situations such as the job of keeping inflation close to a well – defined target is the same as keeping growth on a sustainable path. there was no trade - off. the growth rate of 11 % in domestic demand during the first quarter of 2007 was too high. had we let demand continue to grow at high rates, it would have meant not only excess inflation, but a worsening - quality and more risky investment, as well as an unsustainable current account deficit. let me also assure you that my colleagues and i at banco de la republica and in other areas of the government are very much aware that for growth to bring lasting benefits, it must be sustainable. we have public

leonardo villar - gomez : speech - 25th treasury conference speech by mr leonardo villar - gomez, governor of the central bank of colombia, at the 25th treasury conference, cartagena, 9 february 2023. * * * i must begin by saying something that you know very well. the policy interest rate of banco de la republica ( the central bank of colombia ) has drastically increased over the past year and a half, completing an increase of 11 pp since the beginning of the current cycle of increases in september 2021. we are talking about the strongest monetary policy adjustment process that has taken place during this century and since the bank adopted the inflation targeting strategy that now guides our decisions. the effects of this increase have already begun to be experienced in recent months on aggregate demand, imports, and loans, among other variables. these effects are generally painful and clearly unpopular. unfortunately, inflation has continued to rise ; however, in colombia, we have not yet seen a break in the trendline as has already occurred in many other countries in the region and the world. the multiplicity of inflationary shocks that colombia has received, including the strong accumulated depreciation of the colombian peso in the last two years, has combined with the complex indexing mechanisms we have in colombia to generate considerable lags in the impact of the monetary policy adjustment process on price dynamics. nevertheless, we expect that the process of returning inflation to the target will begin to be observed in the coming months and may be completed by the end of 2024, as we announced after the board of directors'meeting last november. i would like to take the opportunity of this scenario to describe the diagnosis of the main macroeconomic variables and comment on their prospects for the year ahead. thus, i will first refer to the productive activity and the indicators of demand performance. then, i will turn to inflation performance and outlooks. aggregate demand, employment, and productive activity the first thing worth noting is that productive activity and employment were much more dynamic and robust in 2022 than anyone had imagined. the real gdp growth would have been 8. 0 %, a rate that by far doubles the growth of latin america and which the imf estimates at an average of 3. 9 %. last year, very few countries in the world showed growth rates higher than colombia's. the only ones i can identify with the highest growth are saudi arabia and guyana, in both cases, due to significant increases in oil production. the high growth of the colombian