Bogota.– The Bank of the Republic (monetary authority) of Colombia, announced this Friday a rise of 75 basis points in the interest rate, which was set at 12.75% per year, thus extending an upward trend that began in September 2021 .
“There was a consensus on the need for an additional adjustment in the interest rate, an upward movement,” said the manager of Banco de la República, Leonardo Villar, noting that inflationary pressures led to that decision which, however, it is lower than the last rate hikes, which had been 100 points.
Colombia, like the rest of the world, is experiencing an inflationary spiral that caused the Consumer Price Index (CPI) to end 2022 at 13.12%, the highest since 1999.
“Both total inflation (13.12%) and core inflation -excluding food and regulated (prices)- (9.5%) continued their upward trend in December, reaching records higher than those estimated by the technical team and market analysts ”, said the monetary authority in a statement.
The text adds that “the acceleration of inflation was due to upward pressures on food prices, indexation to high inflation rates and the cumulative effects of the depreciation of the peso, among other reasons.”
“In line with this, inflation expectations increased in the last month,” the Bank specified.
signs of slowdown
As Villar explained, of the seven directors of the Board of Directors of Banco de la República, five voted in favor of the increase of 75 basis points and two did so for a smaller increase of 25 points.
“It is simply a difference of degree, in the sense that those who voted for the increase of 25 basis points were convinced that this increase would be enough to guarantee the convergence of inflation towards its target and they give more weight to the deceleration than it is already appearing in the aggregate demand and the imbalances of the economy”, indicated Villar.
In its statement, the Banco de la República indicated that the indicators “point to a slowdown in economic activity starting in the fourth quarter.”
“However, the levels of economic activity continue to be high, for which a growth of 8.0% is estimated for 2022. For 2023, the technical team forecasts a growth of 0.2%,” the statement added.
After pointing out that the growth rate of credit has slowed down, “which favors a moderation of domestic demand, and with it inflationary pressures in 2023”, Villar indicated that “this does not mean that the cycle of increases has necessarily ended ”, although it is close.
“With the decision adopted in its session today, monetary policy is close to the position required to induce a convergence of inflation towards its target of 3% in the medium term”, but the decisions taken at the next meeting, on March 31, they will depend on the economic situation, concluded the Bank of the Republic.