2024-03-23 04:13:02
22/03/2024
The board of directors of the Bank of the Republic, with the Minister of Finance on board, decided by majority to reduce the monetary policy interest rate by 50 basis points (bps), which went from 12.75% to 12.25%.
As was learned at the end of the March meeting, five board members voted for a decrease of 50 points, while one was inclined for a cut of 75 points and another for a cut of 100 points.
That is to say, only the head of the Treasury portfolio, Ricardo Bonilla, was left in the discussion, who since the end of February, when that month’s session was held, had been advocating for an aggressive reduction in the interest rate.
“For the third time (since December 2023) the board of directors of the Bank of the Republic lowers rates, on the path of the process of reducing its intervention rate. The decision was majority, not unanimous, and the discussion is raised in terms of how quickly the rate should be reduced, given that the real rate of the economy is currently at 501 points, it rose 61 points with the inflation data. February, and it only drops 50 points this month, which means that the real rate was 451 points,” Bonilla commented.
In other words, the account made by the minister is that if the annualized inflation as of February of 7.74% is discounted from the current level of the bank’s interest rate, which remained at 12.25%, the difference is 451 points. which, according to him, would allow the Issuer to apply greater rate reductions.
It is worth noting that yesterday’s determination was in line with the forecasts that analysts and the market had. After this adjustment, the board completed 100 basis points of cuts since this phase began in December 2023, when the indicator was at 13.25%, the highest level in 20 years.
María Claudia Llanes, BBVA economist, mentioned that although the board accelerated the pace of rate reductions, “with the reduction in observed or expected inflation, the effects on the real interest rate are still modest and monetary policy continues to be contractionist.”
That is to say, this move does not have enough power for companies or individuals to take out “cheap” debt with the credit establishments of the financial system.
Reviews
In the presentation of the conclusions of the meeting, the manager of the Issuer, Leonardo Villar, highlighted that the technical team revised downwards its inflation forecast for the end of 2024 from 5.9% to 5.4%, and considers that it will continue decreasing in such a way that inflation is close to 3% by mid-2025.
Faced with this estimate, economic researchers from Bancolombia insisted that there may be uncertainty derived from the persistence of inflation in services, or due to the effects of the increase in the minimum wage, the El Niño phenomenon and future increases in the price of acpm.
Likewise, the technical team of the Bank of the Republic projected a growth of the Colombian economy of 1.1% this year, a figure that constitutes an upward revision compared to the January forecast of 0.8%.
On this topic, the president of the Colombian American Chamber, María Claudia Lacouture, pointed out that the decrease in the interest rate is in line with the need to reactivate the economy.
“For this process to generate a greater impact in reversing the country’s economic slowdown, it must be accompanied by an austerity and efficiency plan for public spending that includes reactivating sectors of the economy such as infrastructure and housing, recovery of investment and generation. employment, revive the health system,” noted the former minister.
The next few months
According to the results of the most recent Monthly Survey of Economic Expectations of the Bank of the Republic, by the end of this year the interest rate should drop to 8.25%.
For its part, the Fedesarrollo Financial Opinion Survey anticipates that the intervention rate will be 8%. And in that sense are the forecasts of Davivienda’s economic analysts.
“This difference is explained by the downward bias that we consider in our inflation trajectory compared to the average of analysts, and our expectation that the inflation goal would be met in 2025,” noted the group of experts, of which they are part Carlos Galindo and Juan David Jaramillo.
On the other hand, for the year 2025, analysts foresee a monetary policy rate of 5.50%, but it is noted that the performance shown by the country’s economic activity and inflation, as well as the global economic environment, will be determining factors for continue tracing the path of monetary policy that promotes the development of the country.
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