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For the first time in months Finance Minister Ricardo Bonilladid not vote on the board to lower Monetary Policy Rate of the Bank of the Republic 100 basis points (bp)raising it from 11.75% to 11.25% on Friday.
The Minister said I hope to achieve a consensus among the majority of the Board on the proposal to reduce interest rates by 75 basis points.But in the end the board decided to cut interest rates by 50 basis points, except for co-director Jaime Jaramillo who did not attend the meeting.
(farther: Colombia’s economic slowdown hasn’t brought unemployment down to single digits).
Leonardo Villar, Governor of the Central Bank of ColombiaThe annual inflation rate remained unchanged at 7.2% in May, while the annual inflation rate excluding food or regulated items fell from 6.4% to 6.1%. Annual food inflation exceeded expectations, rising from 3% to 4.4%.
inflation
He assured that the Bank of the Republic survey of economic analysts in June The sample median shows that one-year inflation expectations have fallen from 4.6% to 4.3%. Relative to the May measure, expected inflation at the end of 2025 remained stable at 3.8%.
“Inflation expectations derived from public debt markets remain relatively stable, albeit trending downward over time, but remain above target through the end of 2025.Villar said.
(farther: Republic Bank cuts interest rate by 50 basis points to 11.25%).
back GDP growth in the first quarter hit a record high of 0.9%which exceeded the expectations of the bank’s technology team (0.3%), “Second-quarter indicators suggest the economy will continue to recover“The general manager said.
He said the country’s risk premium and the peso’s exchange rate against the dollar have increased. Against the backdrop of still-constrained international financial conditions.
inflation
Villar says Monetary policy remains consistent with promoting inflation target by mid-2025providing new impetus for economic growth recovery.
he Finance Minister Ricardo BonillaClaiming that all members of the issuer’s board were committed to continuing to lower interest rates, although he warned that there was disagreement between a 50 basis point and 75 basis point cut to bring the intervention rate closer to the inflation rate.
(Lea: Mincendrcio will regulate other types of accommodation in the country besides hotels).
Of course, he clarified that this time the interest rate is less restrictive than in the past, and the actual interest rate has dropped by 50 basis points.
Bonilla also stressed The observed growth path leads to a 1.7% GDP increase this year.
inflation
In any case, he said, there is an international issue that must be taken into account because there are limiting international conditions that are not just wars or conflicts, The Federal Reserve (US central bank) decided not to cut interest rates for the time being, which has an impact on the exchange rate Under the influence of this international situation, strong growth occurred in less than a month.
Villar assured that at the last board meeting in April, the growth forecast had been raised to 1.4%.New estimates from the bank’s technology team will be released at its next meeting in July.”.
(farther: Pension reform: challenges facing retirement in rural areas).
“The information received was positive, indicating that the economy is recovering and on an upward trajectory.” Vera commented.
He warned that at this time,Importantly, the peso has depreciated in recent weeks as international financial conditions have been relatively tight due to uncertainty over US inflation and interest rates, which has led to a strengthening of the US dollar against world currencies. The decision to cut by 50 basis points was made as most said a larger rate cut could be risky.”.
inflation
He stressed that board members were unanimous in their view that interest rates should be below their current levels, but in order to achieve that we must see inflation converge to target.He revealed that the current interest rate (11.25%) is tight “Well, we are reducing inflation, which allows us to reduce the real interest rate, which is 4.1 percentage points lower if inflation is 7.2%. It is above the level that is considered neutral, and we think it will continue to fall in the future once the convergence of inflation to the target is consolidated.”.
He also said that while the rate was high, it was lower than in other countries. Brazil Mexico scored 7.2 points and Mexico scored 6.3 points, but the comments said Chile yes Peru They have controlled inflation, so the neutral rate is lower than in Colombia.
(you might be interested: Cost of living and unemployment will make it hard for Colombians to repay their loans).
For the Colombian central bank president, future interest rate developments will depend on the information available at the time, and he warned:The rhythm can be changed at any time. We are careful not to constrain ourselves by what we will do in the future, but the caution of going down is precisely what makes the process smooth, without setbacks and without the need for reversals.”.
He said a rise in the dollar’s price did not mean intervention.
Bank of the Republic
The finance minister uses the interest rate to calculate
Ricardo Bonilla said that the market consensus is that the Bank of the Republic will maintain its interest rate at 8.5% at the end of the year, from the current level of 11.25%, and there are still four meetings left to make a decision. At some point, the cut will be more than 50 basis points.
He recalled that the recent decision Moody’s Risk Rating AgencyGiving a negative outlook but approving the risk rating shows that efforts are being made in fiscal and budgetary adjustments. He also pointed out that risks always exist, and short-term risks still exist, such as the possible impact of La Nina, which has already caused some floods, so we have to see how crops are affected.
Holman Rodriguez Martinez
Portfolio Reporter
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