The Central Bank of Colombia is raising interest rates to 13% from 12.75%, the bank’s manager Leonardo Villar announced on Thursday. This interest rate is the rate at which the bank lends money to other financial institutions and therefore affects the cost of borrowing in Colombia.
Banco de la República’s board of directors met most analysts’ expectations, who said it would continue raising interest rates, but at a slower pace than in recent months, a sign it plans to halt hikes. While the rate was 100 basis points at each board meeting between August and December 2022, the increase was 75 basis points in January and only 25 this month.
The Minister of Finance, José Antonio Ocampo, was present at the announcement, which was made in front of the media and financial analysts. Villar assured that they made the decision taking into account the latest inflation data, which shows the cost of living in the country rose by 13.28% through February. That’s a figure nearly five times what the entity’s pundits say is good for the economy, the inflation target their rate decisions suggest: 3%. To the extent that inflation shows no signs of abating, neither will rate hikes.
In the press conference following the announcement, the minister reiterated his view that inflation will start to fall. “In my opinion, the upper limit has already been reached. There are different opinions in the board, but we hope that the reduction will start as early as March,” he explained. He believes this is reflected in data such as the ever slowing rate of increase in the producer price index (inflation on intermediate purchases, which usually feeds through to consumer inflation a few months later).
During this time, the person responsible for the economics department also referred to the poor economic situation and thus set signs of hope. “Demand has slowed sharply, which is reflected in vehicle or home sales data. We hope this has bottomed out in terms of the economy slowing down. And that at the same time as inflation falls, economic reactivation is allowed,” he said.
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Manager Villar explained that beyond these forecasts, the board has not yet defined what will happen at its next meeting on April 28: “We cannot decide whether we have already reached the maximum amount of the rate,” he said. He clarified that at each meeting they will review data on economic activity, inflation or the exchange rate and make the decision based only on the most up-to-date information they have for that date.
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