The Board of Directors of the Banco de la República decided, by majority, reduce the monetary policy interest rate by 50 basis points (bps) to 9.75%.
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According to the Issuer’s manager, Four directors voted in favor of this decision and three voted for a reduction of 75 bps.
The board took into consideration that annual inflation in September was 5.8%, below the record of 6.1% in August. Furthermore, inflation without food or regulated items remained stable at around 5.5%, mainly due to the persistence of services inflation.
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For its part, the bank’s technical team also considered that the total inflation projections for 2024 were revised downwards to 5.3% and the inflation expectations implicit in the market for the end of 2025 remain anchored around 3%. For their part, expectations from surveys remained stable around 3.8% by the end of 2025.
Likewise, since the end of 2023, the growth of economic activity has been increasing quarter after quarter. On this basis, the technical team revised upwards its growth projections for 2024 and 2025 to 1.9% and 2.9% respectively.
Bank of the Republic
The Time
Despite the reduction in the interest rate in September and the forecasts of additional cuts by the United States Federal Reserve, the exchange rate of the peso against the dollar has been showing successive increases, which if they become persistent could generate upward pressure on inflation. This would reduce the room for maneuver to continue with the relaxation of monetary policy at the pace that has been carried out until now.
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Recent exchange rate pressures have been associated with the strength of the dollar globally, the fall in the price of oil and the uncertainty surrounding the fiscal situation in Colombia. The latter is due to short and medium-term factors such as the gap in tax collections, and the lack of financing in the 2025 budget. Added to this is the process of the Legislative Act that is taking place in Congress to reform the General Participation System, which could compromise the sustainability of public finances. Clearing these doubts is an essential requirement to calm the markets and maintain the country’s macroeconomic stability.
The reduction in the interest rate approved today continues to support the recovery of economic growth and maintains the required prudence given the risks that remain regarding the behavior of inflation. The Board of Directors reiterates that future decisions will depend on the new information available.
PORTFOLIO
