The minutes of the meeting of the Board of Directors of the Bank of the Republic last Friday, where interest rates were left unchanged at 13.25%, they indicated the risks for inflation to pick up and that is why the possibility of a new rise in the future was left open.
The members of the Board of Directors of the Bank of the Republicsays the Minutes, “They stressed that there are risk scenarios that require leaving open the possibility of a monetary policy response, in the direction that the Board of Directors of the Banco de la República deems necessary.”.
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The document says that directors noted that after stabilizing at a level of slightly above 13% per year in the first quarter, headline inflation recorded consecutive declines in April and May, as a result of the drop in food inflation; the drops in international prices of some foods and transportation costs; the revaluation and reduction of producer price inflation, among others.
The above in the context of “a moderation in the growth of domestic demand and a monetary policy interest rate that is located in contractive territory”.
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At the same time, they stressed that there are forward risks in the behavior of inflation that should not be underestimated, such as the El Niño phenomenon; the expected increases in fuel prices, and the uncertainty surrounding the international economic environment.
The Minutes say that in these circumstances, the directors unanimously supported the decision to keep the intervention interest rate unchanged, and warned that the favorable conditions do not yet exist to initiate a loosening of the monetary policy stance. In their individual interventions, the directors delved into the reasons for their decision and the call for caution in the management of monetary policy.
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In any case, after acknowledging the progress in terms of prices, directors highlighted various aspects of risk regarding the future behavior of inflation, that require special caution in monetary policy decisions, so as not to delay their convergence to the 3.0% target.
They pointed out that in advanced countries and in comparable economies in Latin America, inflation has been reduced substantially. They said that core inflation excluding food and regulated items, especially services, has shown strong rigidity, which indicates that, except for food, significant inflationary pressures persist.
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