Colombia surprised most analysts by slow the pace of monetary tightening after the peso staged one of the biggest rallies in emerging markets and the economy showed signs of a sharp slowdown.
(Read: Will the price of the dollar continue to fall? This would happen in the coming weeks).
The Central Bank raised this Friday, January 27, its reference rate by three quarters of percentage point to 12.75%General Manager Leonardo Villar told reporters after the meeting.
The decision is expected be one of the last of the most restrictive series of hikes in the bank’s history that began a year and a half ago. In recent weeks, the central bank has received some help in its fight against inflation from the currency markets, as the peso rallied after plunging between June and November.
The market received, in turn, with optimism the decision of the Bank of the Republic. “It is a wise and timely decision. Although inflation continues to be higher than the interest rate, this increase is essential because it gives a signal to the market that as long as inflation does not start to drop, interest rates will continue to rise to discourage demand.“, explains Hernando Zuleta, professor at the Faculty of Economics at the Universidad de los Andes.
(Read: The usury rate in Colombia for February will be 45.27%).
According to the expert, this signal makes people adjust their inflation expectations. “A central bank that does not raise interest rates when inflation is high, gives the signal that it is not going to fight to reduce inflation and in that sense expectations are not reduced,” Zuleta points out.
What’s next for the country?
According to Zulette, inflation in January will continue to be very high and this type of rate increase will only take effect in a couple of months. “Let’s hope that inflation breaks before the next decision of the board,” he said.
Economic activity and retail sales data show cooling growth as interest rates for consumers and homebuyers ease.e homes continue to adjust upward after a year and a half of interest rate increases.
(In addition: Banco de la República lowers its GDP outlook to 0.2%).
The bank forecasts that growth will slow to 0.5% this year, from 8% in 2022.
BRIEFCASE
With information from Bloomberg*
