BCR raised the reference interest rate from 4% to 4.50%

BCR raised the reference interest rate from 4% to 4.50%

The directory of agreed to raise the reference interest rate from 4% to 4.50%, continuing with the normalization of the monetary policy position.

According to a statement, for this decision the twelve-month inflation rate was taken into account, which increased from 6.15% in February to 6.82% in March, being above the target range due to the resurgence of significant increases in the international prices of food supplies. and fuels.

Meanwhile, the twelve-month inflation rate excluding food and energy also increased, although to a lesser extent, from 3.26% in February to 3.46% in March, above the upper limit of the inflation target range.

The significant increase in international energy and food prices since the second half of last year, recently accentuated by international conflicts, has led to a sharp increase in global inflation rates in magnitudes not seen in many years in the 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”, referred the monetary entity.

The BCR indicated that the downward path of year-on-year inflation would begin in July of this year, due to the beginning of the reversal of the effect of various factors on the inflation rate and its expectations (exchange rate, international fuel and grain prices). since economic activity will still be below its potential level.

Another factor is that the to twelve months rose from 3.75% to 4.39%, above the upper limit of the inflation target range.

In addition, most indicators of expectations about the economy deteriorated in March.

In the international environment, the BCR observes that world economic activity has been recovering, although at a slower pace due to the impact of COVID-19, due to the persistence of bottlenecks in the global supply of goods and services and relative uncertainty associated to the rate of reversal of monetary stimuli in advanced economies.

However, the recent international conflicts have raised uncertainty regarding the recovery of the world economy and the magnitude of upward pressure on commodity prices.

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.

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