Parenthesis Better growth forecast
During the meeting, the Board also revised upwards its expectation of economic growth for this year. Now, the Issuer expects it to be 4.7%, an increase of 40 basis points, compared to the previous figure, which was 4.3%. Leonardo Villar, manager of the Banco de la República, pointed out that this decision is made on account of the latest figures seen as the improvement in the employment data (12.9%) and the performance of the economy during January.
The inflation that shot up rates
The increase in the interest rate is given as a measure to curb the increase in the cost of living, which is what is known as inflation, which in the last month reached 8.1%. This phenomenon has been occurring since last year due to difficulties in logistics supply chains, a crisis that was recently joined by the conflict between Russia and Ukraine, which made raw materials such as oil, agricultural inputs and energy more expensive.
Thus, the Issuer seeks to stop the prices of the basic basket from growing by accelerating its monetary policy. The economic analysts consulted in the Banrep monthly survey expect a total inflation of 6.4% for 2022, but the Issuer’s average goal is to end the year with an inflation of 3%. The increase in the interest rate seeks to gradually reach that indicator, said Leonardo Villar, manager of Banco de la República.
Credits will be more expensive
When the interest rate rises, the country’s banks pay more for the money that BanRep lends them, and in turn they must charge more to the clients for the credits. With this measure, it is sought that there is less money available to consume and in this way lower the prices of the basic basket. “An increase in rates implies a rise in credit, that is the reality,” assured Hernando José Gómez, president of Asobancaria, although he said that this rate once morest current inflation continues to be attractive. Yesterday the Financial Superintendent increased the usury rate (maximum that can be charged for credits) from 27.71% to 28.58% per year.
Can growth be stopped?
One of the logical consequences of discouraging demand, as is the case with rising interest rates, is that companies’ production slows down, as fewer buyers are interested in their products, and jobs are lost as a result.
In this regard, the Minister of Finance, José Manuel Restrepo, explained that growth projections continue to be interesting for Colombia and that even the International Monetary Fund changed its forecast upwards, as did Banrep’s technical team (see parentheses). . In addition, the Economic Monitoring Indicator for January indicated an annual growth of 7.8%.
More hikes to come this year
Yesterday the Issuer’s manager, Leonardo Villar, assured that the Banco de la República “will continue to make the necessary decisions” to direct annual inflation towards 3%, which is the average goal.
Sergio Olarte, chief economist at Scotiabank Colpatria, said that “if inflation continues to surprise on the upside, the speed of raising interest rates can be increased at the next meeting to be held at the end of April.”
At the moment, most market expert forecasts indicate that by the end of this year the interest rate will be around 7.5%, which may lower the cost of living, but make credits much more expensive.
