If you continue lowering the monetary policy rate at 50 basis points in the coming months, as recommended to the Board of Directors by technical team of the Bank of the Republicsaid indicator would end at 9.25% in 2024.
Nevertheless, the Economic Research Department of the Bank of Bogotáconsiders that despite the fact that its own forecast rose from 8.25%, the closing level of the monetary policy rate would end at 8.75% this year and at 5.75% in 2025.
A report from the Bank of Bogotá indicates that updating the Monetary Policy Report (MPI) of the technical team (staff) of the Bank of the Republic, the minutes of the meetings of the Board of Directors so far in 2024 and the statements of its members have contributed to clarifying the direction of interest rates in 2024.
Interest rates.
By 2025, the report warns, “Without a doubt, the change of two of the five co-directors in charge of the current Government could lead to a transformation of the current position of the Issuer since the Executive, at the head of its highest command, has made clear the need to count with lower interest rates to promote economic reactivation, despite the fact that inflation is still far from the goal”.
That’s why, says it updated its expected path of interest rates from the Colombian central bank“now waiting for the end of 2024 and 2025 levels of 8.75% (previously 8.25%) and 5.75%”.
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He mentions that with the update of the projections of the staff of the Banco de la República in the April MPI, “The exercise carried out in February was reviewed to obtain the implicit path of the reference rate with these projections”.
Interest rates
For economic researchers, a synchronization is observed between the technical team and the Issuer Boardsince the staff recommendation is to maintain the pace of rate cuts at 50 basis points, as preferred by the majority of the Board of Directors in the March and April sessions, and if it continues, the rate would end the year at 9.25%.
The report says that the Issuer’s caution has been evident not only in recent rate decisions, but also in the minutes of said meetings.where five of the seven co-directors have supported this approach”.
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For the financial entity, the reasons behind this are that, on the one hand, Colombia is one of the only countries in the world to still witness inflation far from its goal. “At the same time, it has highly adaptive inflation expectations that make the Issuer’s work difficult and, since since 2021 the Banco de la República has not met its objective of directing inflation towards the goal, fears of loss of credibility in the entity (its most important asset) mean that a contractionary monetary stance is required so that the return of inflation to the range between 2% and 4% is a fact in 2025”.
Bank of the Republic.
The report says that in addition, the deterioration of public finances, the uncertainty in the markets due to the Government’s announcements on the fronts political, economic and socialand more restrictive global financial conditions in the face of adjustments in the Federal Reserve’s rate outlook also support the Board being unable to increase the magnitude of the pace of cuts.
HOLMAN RODRÍGUEZ MARTÍNEZ
Portfolio Journalist
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