In line with the expectations of analysts and economic experts, Banco de la República’s board of directors decided to raise interest rates in the face of persistent inflation.
(Banco de la República, before prices were first raised in 2022.)
The bank increased the interest rate on Friday by 100 basis points, which is 4%.
Although analysts appreciated an increase in their forecasts and President Duque asked for “fineness” in raising interest rates so as not to halt reactivation, the rally was from highs recently, a trend that could continue as inflation rises.
(Ducky asks for “savvy” to raise prices so as not to stop the reactivation.)
“Recognizing the independence of central banks, it is also appropriate to warn that taking internal measures in the face of an external phenomenon can lead to an increase in interest rates to the point of slowing down reactivation. Therefore, subtlety in these decisions is essential in order to keep our countries revitalized,” President Duque said Thursday in the framework of the third summit of the South American Progress Forum (Prosor), an hour before the source board meeting.
According to the bank’s board of directors, overall inflation continued its upward trend, registering a variation of 0.73% in December, an increase of 30 basis points from what was expected by the technical team. Thus, overall consumer inflation closed at 5.62%.
“The results of inflation in 2021 have led to a significant increase in inflation expectations measured from various sources, including non-food inflation. The technical team’s forecasts have also been revised upward and expect total inflation and core inflation to reach 4.3% and 4.5% in 2022., It falls at 3.4% and 3.6% in 2023.”, the Council noted in its decision.
In discussing its policy, the Board of Directors took into account the following elements:
The Economic Monitoring Index (ISE) for November showed that the economy continues to expand. In this context, the technical team reiterated its forecast for GDP growth for 2021 at a rate of close to 10%. With this growth, the GDP of 2021 will exceed the GDP of 2019, and the current spare capacity will be on the verge of closing. For 2022, the forecast will be around 4.3%.
(At the end of 2021, banks raised interest rate fees.)
The current account of the balance of payments will close in 2021 with a deficit of approximately 5.7% of GDP. By 2022, this imbalance will begin to decline towards the level of 4.9% of GDP, in an international financial environment that is beginning to tighten due to the accelerating pace of monetary policy normalization in the United States and other advanced economies.
“With the decision adopted today, the monetary authority renews its commitment to the annual inflation target of 3%, for which it will continue to take the required decisions to ensure that inflation converges with the stated target.” In addition to the Board of Directors of the Central Bank.
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