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

Banco de la República will take rates to a minimum of 7%: analysts

The consensus of all economic analysts is that today the Banco de la República will raise the intervention interest rate above 100 basic points (one percentage point) and the would place at least 7%, to combat persistent inflation, which as of May was 9.07% in annualized terms.

(Read: The departments that led the country’s growth in 2021).

Although the increase in prices moderated in the fifth mis of the year with an indicator of 0.82%, Analysts have expressed concern about the effects generated by imported inflation due to increases in fuel prices and the effect that Russia’s invasion of Ukraine has had on some supplies.

Surveys by economic research organizations and the Bank of the Republic have shown that the market is thinking that the Issuer would have to resort to an unprecedented rise in history, above 100 points.

The majority of analysts consulted by Fedesarrollo, in the June Financial Opinion Survey, said that the intervention rate of the Banco de la República will be located at 7.25%, that is, 1.25 percentage points higher at the prevailing rate of 6%.
The Economic Expectations survey of the Banco de la República says that the average interest rate would reach 7.16% compared to the current 6%.

Camilo Pérez, manager of Economic Research at Banco de Bogotá, points out that the rise in the Issuer will be 150 basis points because there is strong economic activity on the rise, with a high probability that the output gap (difference between what the economy is producing and what it can produce at maximum capacity) has already closed.

It also warns that rising inflation would persist until the end of the year and at an international level it has been seen how the Federal Reserve in the United States and the European Central Bank have made strong increases, tightened monetary expansion and have toughened their speeches.

And unlike what some might think, after the victory at the polls of the left alternative, the political issue is not the one that weighs and instead “if the dollar shoots up and thisaffect inflation, I would take it into account,” he assured.

In addition, although with the current economic situation there is a good dynamic and levels of activity prior to the pandemic can be seen, Pérez considers that although employment continues to improve, “it is somewhat lagging because some 500,000 jobs.

But in contrast, the analyst considers that there are risks of recession at the international level, which would be a factor that limits the increases of the Colombian central bank.

For his part, Julio César Romero, an economist at the Economic Research Department of Corficolombiana, the bank is in a position to raise its interest rate by more than 100 basis points. In fact, Corficolombiana expects the increase to be 150 basis points up to 7.5%.

He recalled that even with this rate level, it is still expansionary because inflation is above 9%.

In any case, analysts and the market foresee a closing of inflation above 8.4% and the other year around 4%.

(Also: 1.4% rise in May in building costs),

In the case of Corficolombiana, he said that they expect inflation to close this 2022 in the 9.8% and 6% next year and “that is why we must act forcefully,” he assured.


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