At the first meeting of the Banco de la República in 2023, the entity decided increase its interest rate by 75 basis points to 12.75%. Five of the directors voted in favor of this decision, and 2 did so for an increase of 25 basis points.
This is a significant rise, although much lower than the previous ones, which had been between 100 and 150 bps. By the end of 2022, interest rates went from 11% to 12%the highest cost of money since December 2001.
(Read: ‘The hard and mature’ are coming: this is how you can face high rates).
“It is a decision that is consistent with what most countries of the world’s central banks do. There are some who hold a monthly meeting, but most have 8 meetings a year. Including the Federal Reserve“, explained Leonardo Villar, president of the Bank of the Republic.
The manager clarified that the decision it does not respond to immediate situations nor does it intend for its impacts to be seen in the short term. “A characteristic of monetary policy is that it makes decisions sparingly, based on general diagnoses and that it responds to cycles,” Villar said.
In this sense, the effects of the rate hike are not expected to be in the following days, weeks or even months. “These are decisions that are expected to affect the 6 months“, pointed out the president of the Bank.
(Also: They ask the Fed not to signal their possible movements on rates).
Would it be a moderation in the Bank’s decisions? Villar clarified that this decision responds to a search for inflation convergence towards the final goal that they set for 2023 of 3%.
“It does not mean that the cycle of increases has ended because we have to constantly review the new information on all those elements that affect the outlook for inflation going forward.“said the manager.
It implies a signal of convergence towards the level at which the interest rate is already considered to be adequate given the information that is currently available for the reduction of inflation.
(Read: Inflation will remain high and rate hikes will only be felt in a few months).
“We know that inflation has continued to rise, but we also see that it will start to drop in a relatively short period of time in the coming months. It is a strong, important increase, and higher than what the bank has historically done, but really less than what has been done in most of 2022”, concluded Villar.
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