For the first time in several months, the Minister of Finance, Ricardo Bonilladid not vote on the board of directors for lowering 100 basis points (bp) the monetary policy interest rate of the Bank of the Republicwhich this Friday took it from 11.75% to 11.25%.
The Minister said that I wanted to generate a consensus in the majority of the board with the proposal to lower the rate by 75 bpbut in the end the board, with the exception of co-director Jaime Jaramillo, who did not attend the meeting, decided on a 50 bp decrease.
(More: Colombia’s economic slowdown is preventing unemployment from falling to single digits).
Leonardo Villar, manager of the Colombian central banksaid that annual inflation in May remained unchanged at 7.2%, while annual inflation without food or regulated items fell from 6.4% to 6.1%. Annual food inflation exceeded expectations, rising from 3% to 4.4%.
Inflation
He assured that the survey of economic analysts carried out in June by the Bank of the Republic showed a median decrease in the one-year inflation expectation from 4.6% to 4.3% in the sample with respect to the May measurement, and stability at 3.8% for expected inflation at the end of 2025.
“Inflation expectations obtained from the public debt market remained relatively stable, and although they point to a downward trajectory over time, they remain above the target until the end of 2025“said Villar.
(More: Banco de la República reduced the interest rate by 50 basis points to 11.25%).
After record GDP growth of 0.9% in the first quarterwhich exceeded the estimates of the Bank’s technical team (0.3%), “Indicators for the second quarter suggest that the economy would have continued its recovery path”said the general manager.
He indicated that the risk premiums for the country and the exchange rate of the peso against the dollar have increased, in a context in which international financial conditions remain restrictive.
Inflation
Villar said that monetary policy maintains a stance in line with the objective of driving inflation to its goal by mid-2025while offering new impetus to the recovery of economic growth.
He Minister of Finance, Ricardo Bonillaasserted that there is a commitment from all members of the Issuer’s board of directors to continue lowering the rate, although he warned that there was disagreement between doing so at 50 bp and 75 bp to bring the intervention rate closer to that of inflation.
(Read: Mincomercio would regulate other types of accommodation in the country other than hotels).
Of course, he clarified that this time the rate is less restrictive than in the past and the real rate dropped by 50 points.
Bonilla also emphasized that a growth path is observed that causes a GDP increase of 1.7% to be forecast this year.
Inflation
In any case, he said that there is an international issue that must be taken into account, since there are restrictive international conditions that, more than wars or conflicts, It is the decision of the Fed (central bank of the United States) not to lower its rate for the moment, which has effects on the exchange rate and in less than a month it registered strong growth due to this type of international situations.
For his part, Villar assured that at the last board meeting in April the growth projection was revised upwards to 1.4% “and a new estimate from the bank’s technical team will be announced at the next meeting in July.”.
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“The information received is positive, showing an economy in recovery and on an upward path.“, Villar said.
He warned that at this time what “What matters are the international financial conditions that have been relatively tense due to the uncertainty of inflation and rates in the United States and that causes the dollar to have strengthened against world currencies and therefore the depreciation of the peso in recent weeks. That is why the decision was made to lower 50 bp since the majority said that a stronger reduction could be risky”.
Inflation
He stressed that there is consensus among the members of the board to have lower rates than the current one, but to have them, inflation must converge to the target.. He revealed that the current rate (11.25%) is contractionary “We are in the process of reducing inflation, which is allowing us to lower the real rate, and with inflation at 7.2% it is 4.1 percentage points. It is higher than what is considered neutral and we believe that in the future it will continue to fall as inflation converges to the target.”.
He also said that although the rate is high, it is lower than that of countries like Brazil where it is 7.2 points or Mexico which has it at 6.3 points, but commented that Chili and Peru They have already controlled inflation and therefore the neutral rate is lower than the Colombian one.
(You may be interested: Cost of living and unemployment would make it difficult for Colombians to pay loans).
For the manager of the Colombian central bank, the future path of the rate will depend on the information available at the time and warned that “the pace could change at any time. We are careful not to condition ourselves with what we are going to do in the future, but the caution of going down is precisely so that this process is smooth, without setbacks and without the need for reversals.”.
He said that increases in the price of the dollar do not imply intervention.
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Ricardo Bonilla said that the market consensus is that the Banco de la República rate will close the year at 8.5% and with the current level of 11.25% and with four sessions remaining in which decisions can be made, at some point the decrease will be greater than 50 basis points.
He recalled that the recent decision of the Moody’s risk rating agency, putting a negative outlook, but ratifying the risk rating, shows the efforts being made in terms of fiscal and budget adjustment. He also pointed out that there are always risks and short-term risks remain, such as the possible effects of the La Niña phenomenon, which has already generated some floods, so we must see how crops are affected.
HOLMAN RODRIGUEZ MARTINEZ
Portfolio Journalist
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