This Monday, September 30, the Board of Directors of the Bank of the Republic will meet to make a decision regarding your intervention rate.
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For a few months now, the Issuer has chosen to lower the indicator as part of its objective of giving a boost to the economy. However, both the Government and some market analysts consider that It is time to accelerate the pace of cuts.
At the last meeting of the Banrep board of directors it was decided to lower the intervention rate by 50 basis points, taking the indicator from 11.25% to 10.75%. Now, analysts’ expectations for the possible upcoming adjustments are divided between a new prudent cut of 50 basis points and a larger one of 75 basis points.
According to the most recent survey by the Anif economic study center, the board should lean towards a cut “bolder” considering the dynamics that inflation, credit and household consumption have been registering.
“In our opinion, the best option in the current situation is to advance on a path of more decisive cuts, at a rate of 75 basis points in the three remaining meetings of the year”mentions Anif, who also highlights that a cut of this type would not be exempt from criticism.
The study center also mentions understanding the central bank’s concerns about increasing the magnitude of the losses, whose cautious pace responds to concerns about inflation expectationsthe tax issue and a possible excessive increase in the minimum wage.
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Interest rate
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For her part, Carolina Monzón, manager of economic research at Banco Itaú, pointed out that it is expected that Banrep maintains a cautious stance. This considering the board’s rationale for not accelerating the cuts.
“Board minutes revealed that the majority (5 members) who voted in favor of a 50 bp cut noted that larger cuts could jeopardize the continuity of the cut cycle in the medium term. Among the main reasons is the persistence of inflation of services, mainly due to rental prices and country risk premiums, which continue to be high in the midst of a difficult fiscal scenario”he highlighted.
Monzón also recalled that at the end of September, these risks are still present. For example, Uncertainty around the Government’s fiscal accounts remains highwhile inflation in services remains above 7%.
On the Government side, the Minister of Finance, Ricardo Bonilla, has repeatedly called for the Issuer to consider lowering rates by 75 basis points and thus direct inflation towards the goal of 5.3%.
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