Banco de la República, before the first rate hike of 2022

Banco de la República went on the offensive in terms of rates

With the 150 basis point increase (1.5 percentage points to 7.5%) that the Bank of the Republic decreed on Thursday in its rate, the entity changed its gradualist position in terms of economic normalization to a more dynamic one, as several central banks have been doing , to try to combat persistent inflation.

(Read: How much could be collected with the new tax reform?).

with himStrongest increase in 24 years and the most important since when the target inflation policy was implemented, in October 2020, the Colombian issuer sent the message that it is necessary to control both the increase in prices and their expectations.

But even the manager of the entity, Leonardo Villar, said that it is necessary that monetary policy is somewhat contractionaryto prevent inflation from continuing to rise and generating distortions in an economy that is currently growing at a strong rate.

These two elements, the inflation that at the end of May registered an annual indicator of 9.07% and the strong growth of the gross domestic product were the main causes of the increase in the main liquidity instrument of the Colombian central bank.

For Camilo Pérez, director of Economic Research and Market Analysis at Banco de Bogotá, inflation will be consistently above 9% in annual terms in the coming months and in fact it forecasts that in June it will rise 0.48% and will reach 9.65% for the last 12 months.

He indicates that clearly accelerating the rate of the Banco de la República is a reflection of inflation, which surprises on the rise and is going to remain high, but he clarified that this is something not only in Colombia but globally.

Of all, he also considers that the economic activity of the second quarter is going to be higher than that of the first and this is a phenomenon “that does not happen in another country”.
Camilo Pérez also emphasizes the fact that the world’s central banks have become more aggressive and in the medium and long term they will continue to increase the cost of money.

The Banco de Bogotá analyst says that it is necessary to analyze the words of the Minister of Finance, José Manuel Restrepo, who after the board of directors of the entity said that the increase of 150 basic points in the interest rate it won’t necessarily happen again“because that could also imply that it is not ruled out either.”

He drew attention to the fact that by July inflation continues to accelerate as well as economic activity, which will become a condition for the next meeting of the board at the end of that month in which a new increase is planned.

“In July the meeting is key, because the monetary policy report is published and then comes August, in which by programming there will be no decision on rates and again, until the end of September there will be a new meeting in which measures can be adopted. of monetary policy”, affirms the analyst.

(Also: Increase of 150 basis points: an unprecedented rise in interest rates).

Will you repeat the formula?

“That is why we believe that the Banco de la República will raise rates again by 150 basis points in July, to speed up and make sure,” says Camilo Pérez.

In the discussion about the increase in prices and rates there is an element to analyze, since last May’s inflation had a setback that was largely explained for the national strike of 2021.

Last year, with the closure of roads and the siege of Cali, food prices rose.
For Andrés Langebaek, director of Economic Research of the Bolívar Davivienda Group, when May 2022 and the same month of 2021 are compared, there was a temporary decrease because it was a statistical phenomenon “that will be reversed in June.”

That is why for the analyst, in the sixth month of the year, accelerate annual inflation from 9.07 to 9.75%, with a monthly increase of 0.58%, due to the food item that resumes the ascending race and the subject of leases and public services.

And on the other hand, he considers that the day without VAT helps to moderate inflation a little “because people buy clothing and footwear and in those two sections we are going to have favorable data.”

Langebaek indicates that the difference between inflation and monetary policy Colombia was the one that registered the greatest delay compared to the rest of the countries, which have increased at higher rates.

“In the emerging countries, the Colombian backwardness was evident and it is falling behind, but there are still 200 basic points to catch up,” he said.

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