Col’s monetary policyombia is contractive enough as for the older rate of inflation in almost a quarter of a century drop to target range by the end of 2024, according to a senior government official. Bank of the Republic.
(See: Colombian economic activity started the year at a good pace).
After raising its benchmark interest rate by 11 percentage points over the past year and a half, the risks of a sharp economic slowdown now outweigh the threat of faster inflation, he said in an interview with Bloomberg he co-director Mauricio Villamizar.
“We now think that we are in a sufficiently contractive monetary policy stance to reach the target in the medium term“said Villamizar, former head of the Issuer’s economic research department.
“This does not necessarily mean that we are done with increases, or that we can rule out reacting to unexpected ‘shocks’“, he added.
The Banco de la República surprised most economists in January by making a lower-than-expected increase of three-quarters of a percentage point, raising the interest rate at 12.75%.
(See: Colombia will continue with the exploration of liquid fuels and gas).
It was the latest measure in an unprecedented monetary tightening campaign in response to what Villamizar described as a set of “once-in-a-lifetime” inflationary shocks.
Traders are divided on whether Banrep will halt rate hikes at its March 30 policy meeting, following in the footsteps of Brazil and Chile, or if it will raise them for the twenty-third consecutive meeting.
Villamizar said that he hopes that economic growth slows to between 0% and 1% in 2023, below 7.5% in 2022, as the economy feels the impact of last year’s rate hikes.
“We see clear signs of a marked slowdown in domestic activity since the last quarter of 2022“, maintained Villamizar. “In fact, it can be seen very clearly in imports, consumption and bank credit, for example.“, he added.
Monetary policy affects output after a lag of about 9-12 months, he said. This means that the measures adopted by Banrep in June and July 2022, when it increased its key rate by 1.5 percentage points in two consecutive meetings, They are just beginning to take effect.
In general, a “monotonous trajectory” of interest rates is preferable, rather than stops and starts, to avoid the perception of erratic measures, he added.
(See: The country’s GDP aims to grow 0.7% in 2023, according to BBVA Research).
Villamizar said he expects inflation to drop to between 8% and 9% by the end of this year, from 13.3% in February.
Colombia’s annual inflation target is 3%, plus or minus 1 percentage point.
Food price inflation, currently at 24%, could return to single digits by the end of 2023, added the co-director.
“We have seen some cautiously optimistic signs, but perhaps it is too early to celebrate“, held.
Mauricio Villamizar, co-director of Banco de la República.
Bank of the Republic
Colombian President Gustavo Petro has repeatedly criticized the bank’s interest rate hikes, saying they cause unnecessary damage to the economy and they do not solve the root causes of inflation.
(See: Colombia is the country where you get up early, but not the most productive).
Petro has proposed measures such as fertilizer subsidies and price caps on utility bills as alternatives.
However, the president’s attempt to take control of regulatory commissions fixing the prices of utility bills was struck down by a court.
Villamizar said that the Issuer continues to enjoy great credibility, despite the fact that it is on track to exceed its inflation target for the third consecutive year.
“We’ve had multiple inflationary shocks and very persistent shocks, so basically it’s different from anything we’ve seen in the past.“, he claimed.
(See: Inflation peaked? Analysts see that the pressures persist).
“But as long as people know that we are doing what we can to ensure this convergence, having three consecutive years of missing the target will not jeopardize the credibility we need.“.
Bloomberg
