The directory of the Central Reserve Bank (BCR) agreed to raise the benchmark interest rate by 50 basis points from 2.5% to 3%, to face inflation that is above the target range of said entity.
In this way, they indicate that they continue with the normalization of the monetary policy position.
They recall that the twelve-month inflation rate increased from 5.66% in November to 6.43% in December, being the highest in 13 years and being located above the target range due to factors such as the increase in international prices of food supplies and fuels, as well as the exchange rate.
“The inflation rate excluding food and energy for twelve months stands at 3.24% in December, above the upper limit of the inflation target range,” they indicate.
The BCR estimates thate, inflation will return to the target range in the fourth quarter of this year, due to the reversal of the effect of transitory factors on the inflation rate (exchange rate, international fuel and grain prices) since economic activity will still be below its potential level.
However, they comment that inflation expectations for 2022 rose from 3.5% to 3.7%, above the upper limit of the inflation target range.
They also recall that most indicators of expectations regarding the economy continued in the pessimistic section in December.
Regarding world economic activity, the BCR mentions that it has been recovering, although at a slower rate due to outbreaks of COVID-19 infections and the appearance of new variants and bottlenecks in the global supply of goods and services.
“The recovery process is expected to continue in the coming quarters as vaccination in the world and significant fiscal stimulus programs in developed countries continue to advance,” they report.
Expectations
“The board of directors (of the BCR) is especially attentive to the new information regarding inflation expectations and the evolution of economic activity to consider, if necessary, modifications in the position of the monetary policy that guarantee the return of inflation to the target range ”, they indicate.
Thus, with The information available considers it advisable to continue with the normalization of monetary policy in the coming months. The financial markets have continued to show volatility in a context of uncertainty and the actions of the BCR were oriented to attenuate these volatilities.
In the same session, the board of directors agreed on the following interest rates for the BCR’s operations in national currency with the financial system under the window modality.
i. Overnight deposits: 1.85% per annum.
ii. Direct reporting operations of securities and currency, and Monetary regulation credits: 3.50% per annum.
The next session of the directory in which the Monetary Program will be evaluated is scheduled for February 10, 2022.
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