Why if inflation goes down and rates are cut, the country’s GDP is growing

Recently, Camilo Herrera Mora, founder of the Raddar business group, addressed in a simple and clear way the relationship between the Gross Domestic Product (GDP), interest rates and inflation, key concepts in the economy that affect all citizens.

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Herrera explains that inflation represents the variation in prices of a basket of basic products that Colombians purchase. This measurement is crucial to understanding the purchasing power of the population and how fluctuations in prices affect their ability to purchase goods and services.

In contrast, the Bank of the Republic’s interest rate, which determines the cost of money lent to financial entities, adjusts in response to inflation.

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When inflation increases, as has been the case in Colombia, the Bank of the Republic tends to raise interest rates. This decision aims to make credit more expensive, which in turn slows down consumption and investment.

“By making credit more expensive, production grows more slowly and people spend less. Herrera points out. This results in lower demand for goods, which can lead to a slowdown in price increases.

This strategy has a direct impact on GDP. When inflation is kept under control, economic conditions improve.

According to Herrera, “Stopping inflation allows the economy to grow, because more people are willing to buy more things.”. As consumption increases, companies see an increase in their sales, which leads to greater production and, in turn, job creation. This virtuous cycle not only benefits workers, but also allows the State to collect more taxes.

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In the current context, with declining inflation and GDP growing at 2%, the key to economic stability is the containment of inflation. Herrera concludes that “lower inflation so that the economy grows: it is simple.”

This approach highlights the importance of coordination between monetary policies and general economic well-being, emphasizing that well-informed decisions about interest rates They can have positive effects on the economic development of the country.

PORTFOLIO