Interest rates: when would the period of cuts begin in the country?

In its last monetary policy meeting, the board of directors of the Banco de la República decided to keep interest rates at 13.25%. With this determination, the Issuer continues with its objective of bringing inflation towards its target of 3.0% by the end of 2024.

If we go back a few years, since September 2021, Banrep had chosen to increase its reference rate as part of its strategy to counteract the impact of rising prices.

(More news: The Bank of the Republic decided to keep rates at 13.25%)

However, after registering in this 2023 two consecutive months in which the Consumer Price Index (CPI) fell, placing the annual indicator at 12.36% in May, the rate hike cycle began to slow down.

So, Is this result an indication that interest rates will begin to be cut?

(See: Will Colombia begin to cut its rates?: This says the Ministry of Finance)

The general manager of Banco de la República, Leonardo Villar, explained that the magnitude by which the reference rate is raised or lowered depends in real terms on the level of inflation and the information available when making this decision.

“What we have insisted is that the moment to move interest rates is something that we will monitor in the future with the information that we have available and the right moment for that to happen we will have to evaluate later”Villar pointed out.

The Banrep manager added that the criterion followed by the board of directors to determine the behavior of the intervention rates is to observe if inflation is directed towards meeting the goals. So, it is not yet possible to say when they will go down.

Along the same lines, the Minister of Finance, Ricardo Bonilla, indicated that, although there are signs that the trend to maintain lower prices could consolidate in the coming months, there is still a determining factor in the behavior of the CPI: adjustment in fuel rates.

“Under this measure, what we are doing is comparing the behavior of inflation, food prices and others, with what fuels rise so that we do not have a new reactivation of inflation” highlighted the Minhacienda.

The leader of the Treasury portfolio stressed that once this trend is consolidated, after four or five months of review, it will be possible to consider what is the opportune moment to cut interest rates.

(More news: Fitch reaffirmed Colombia’s rating at BB+ Stable Outlook)

However, he added that it is necessary to maintain caution in monetary policy decisionsespecially if they take into account other considerations that could influence the behavior of inflation in the future.

“We have to be cautious and predictable in terms of the fact that today the trend tells us that prices will continue to fall, but that we have to anticipate the El Niño phenomenon and the adjustments that may occur in the exchange rate. Under these considerations we want to maintain a monitoring that leads us to have better information before making another type of decision “Bonilla pointed out.

BRIEFCASE