The Board of Directors of the Central Reserve Bank (BCR) agreed to raise the reference interest rate by 50 basis points, from 5.50% to 6%, continuing with the normalization of the monetary policy position. This is the highest rate since March 2009.
According to a statement, the twelve-month inflation rate was taken into account for this decision, which increased from 8.09% in May to 8.81% in June, being above the target range due to significant increases in international prices of food supplies and fuels.
Meanwhile, the twelve-month inflation rate excluding food and energy also increased from 4.26% in May to 4.95% in June, above the limit of the inflation target range.
“The significant and continuous increase in international energy and food prices since the second half of 2021, accentuated by international conflicts, has led to a sharp increase in global inflation rates in magnitudes not seen in many years and towards levels significantly higher than the goals of central bank inflation, both in advanced economies and in the region. With this, it is projected that inflation would return to the target range between the second and third quarters of next year”, pointed out the monetary entity.
The BCR indicated that the downward path of year-on-year inflation will begin in July of this year, due to the moderation of the effect of international food prices, such as energy, and an economy still below its potential level.
Another factor is that twelve-month inflation expectations rose from 4.89% to 5.35%, above the upper limit of the inflation target range.
In addition, most of the leading indicators and expectations about the economy deteriorated in June and remain in the pessimistic range.
The BCR also indicated that world economic activity has been recovering at a slower rate due to the persistence of bottlenecks in the global supply of goods and services, the reversal of monetary stimuli in advanced economies, the confinement measures in China and international conflicts.
In addition, the board of directors of the monetary entity mentioned that it is attentive to the new information regarding inflation and its determinants, including the evolution of inflation expectations and economic activity, to consider additional modifications in the monetary policy position that guarantee the return of inflation to the target range in the projection horizon.
