Banco de la República surprised everyone with a rate hike of 3 to 4%

Co-directors of the Banco de la República fear higher inflation

The two directors (of seven) of the Bank of the Republic who voted for a 150 basis point increase in the interest rate underlined the robust performance of economic activity and the improvement in employment indicators but expressed concern that the inflationary outlook could become even more difficult.

(Market expects inflation in March to approach 8.45%).

In the minutes of last Thursday’s meeting of the Board of Directors in which it was decided to raise rates by 100 points to 5%, they said that price pressures “They could come from the significant increases registered in the producer price index, and from the probable unsustainability of the gasoline price subsidy that has been providing relief to the consumer.”

They said that they perceive a risk that the nominal contracts that are currently signed and are usually agreed to for a term of one year incorporate the higher inflation expectations and add that the persistent increase in production costs could affect the productive capacity of the economy. What’s more, expressed concern that the faster-than-expected withdrawal of monetary stimulus in the United States coincides with increases in risk premiums for Colombia, the latter associated largely with political uncertainty.

(Inflation, the headache for the Colombian economy).

The five directors who supported an increase of 100 basis points they considered that it is a significant adjustment of the interest rate, which replicates the decision adopted in January.

These directors consider it prudent to maintain the rate of increase that was used at the Issuer’s Board of Directors in January, taking into account the uncertainty surrounding the international context, the need to continue with the recovery of the level of employment, and the importance of preserving the strengthening of the Colombian economy after the hard blow caused by the pandemic.

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