DTF’s History

• The Colombian DTF rate was considered up until July 2002 to be a strong measure of immediate shifts in the repo rate in Colombia. Because it was so marked in its reflection of rate changes, it could be depended on to play a major force in Colombian monetary policy for establishing interest rates. Around the summer of 2002, though, the DTF rate leveled off at 7.8 percent and remained wavering around that figure ever since, despite large swings in repo rates that had previously affected this number.
  
  

How Repo Rates Affect Interest

• Repo rates are known as the rate at which the reserve bank of a country is able to buy back securities such as CDs from commercial banks to keep their reserve funds at a certain level of supply. By raising repo rates, the central bank can bring more funds back out of circulation, while lowering repo rates has the effect of banks selling off more of their securities for liquid assets. By controlling this rate, the central bank can directly affect local interest rates as it sees fit, though as the DTF rate began to not respond to the repo rate, the efficiency of this maneuver has also flattened.
  
  

Negative Rates in Colombia

• The 1990s represented a period of falling interest rates in Colombia, matched by a similarly decreasing inflation rate. Around the spring of 2002, however, the rate of inflation took an upward turn, while the interest rates continued falling. This caused a negative interest rate in Colombia for overnight repos, thus causing the effectiveness of the central bank’s ability to influence interest rates. The DTF, however, did not reflect this shift, causing its usefulness to also become less dependable as a measure of economic state.
  
  

Alternatives to DTF

• Because of the questionable nature of the DTF as an indicator of the market, other rates of measure have been raised in Colombia. The TES is a measure of the rate paid on 90-day securities by Colombian Treasury Bills, and has been suggested by some analysts to more directly reflect the current market levels in the Colombia economy.