Real interest rate: the decisions that the Bank of the Republic has made with it

In its last monetary policy meeting, The board of directors of the Bank of the Republic decided to maintain its intervention rate at 9.25%. This cautious position, which had four votes in favor, responds to the risks identified regarding the convergence of inflation to the target.

But, Why do interest rates remain high if the cost of living has been declining?

The Issuer uses the intervention rate as a tool to bring this indicator closer to the target range, which is currently projected at 3%. This is done with a view to controlling prices and aligning expectations.

This effort is measured with the real interest rate, which takes into account observed or expected inflation. In fact, to get an idea, this can be compared with that of other countries in the region; when inflation is far from the target, it tends to be higher.

Interest rate

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The real interest rate

This indicator corresponds to the nominal interest rate adjusted for inflation, which reflects its true purchasing power. This figure indicates the performance or real cost of a credit or investment.that is, the change in purchasing power.

Having this data is important because Banrep, as well as other central banks in the world, They take into account expectations regarding the behavior of the cost of living to adjust or maintain their intervention rate.

Taking some neighboring nations as a reference, Colombia is in line with the trend, with the real rate being consistent with the movement that the Consumer Price Index (CPI) has been recording.

Now, when the CPI stabilizes near the range, The board of directors could resume the cycle of cuts. It is worth remembering that the most recent inflation data, corresponding to September, stands at 5.18%, which reaffirms the slight upward trend that the indicator has been experiencing.

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