In its last meeting of 2022, the board of directors of the Banco de la República decided to raise its interest rates again by 100 basis points to place them at 12 percent., a level not seen since February 2001.
The decision was made by majority. Four board members voted for a 100 basis point increase, one manager proposed an increase of 125 basis points and another voted 25 basis points.
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The monetary policy normalization cycle by the Banco de la República began in September 2021. In that month, rates were at 1.75 percent.
To increase interest rates to 12 percent, the board of directors took into account that in November annual inflation maintained a growing trend, higher than expected. Total inflation stood at 12.5 percent and the basic (without food or regulated) reached 8.8 percent. Accumulated exchange rate pressures on prices and indexation to high inflation rates contributed to this result.
Another data that was taken into account was the annual growth of the GDP in the third quarter, which reached 7.1 percent and exceeded the forecast of the technical team (6.4 percent). Despite the fact that in the most recent months a slowdown in economic activity has been observed, for the entire year a 8 percent growth.
According to the Bank of the Republic, inflation expectations continue to be above the target at all horizons. In the case of the expectations survey carried out in December, total inflation would be 7.5 percent and inflation without food would be 7 percent at the end of 2023.
(Also read: The increase in the minimum wage exceeds inflation by 3 points)
In addition, the current account deficit as a proportion of the GDP in the third quarter of 2022 it reached a historically high level of 7.2 percent. “Although international financial conditions for Colombia have recently improved, they remain tight globally, in a context in which a slowdown in the world economy is expected,” said the Issuer’s board of directors.
For the Minister of Finance, José Antonio Ocampo, the decision of the board of directors had great relevance “the problems associated with inflation not only is it still high, but it increased in November, and inflation expectations continue to be very high”.
The fact that the Banco de la República estimates a economic growth of 0.5 percent by 2023while the Ministry of Finance is more optimistic and expects it to be 1.3 percent.
Likewise, the minister highlighted that the financial conditions of Colombia have improved “quite a bit” in the last month and a half and there has been a exchange rate moderationdespite the fact that the devaluation of the Colombian peso for the whole year continues to be high.