Colombia raises interest rate to 7.5%, oldest hike in history

The board of directors of the Bandada de la República, Colombia’s central headquarters, voted unanimously on Thursday to raise the key rate from 6% to 7.5%, the veteran of the rate hike in l history of the South American country. Annual inflation hit 9.23% in April before dropping slightly to 9.07% in May, so headquarters found it necessary to influence inflation expectations by raising the rate significantly.

“The courage adopted today is consistent with the strength of economic activity over the past few quarters and will help accelerate monetary policy towards a path that lowers inflation and moves closer to the medium-term objective,” the institution said in a statement. “Going forward, the pace of monetary tightening will depend on the availability of new information,” the authorities added.

Faced with questions from journalists, the joint director of the Bandada, Leonardo Villar, and the well-known Minister of Finance and Credit, José Manuel Restrepo, assured that the inflation from which Colombia suffers is even suffered by most countries in the world. . “This rise in the entry interest rate, unprecedented in the new history of the country, aims to bring inflation expectations closer to target more quickly, and it allows us to avoid the requirement for excessive increases in this interest rates going forward,” Villar said. Colombia’s inflation target range is between 2% and 4% per year.

The country’s strong economic recovery is surprising, Restrepo said. “I would like to emphasize that one of the very important reasons for this courage lies in the fact that the growth of Colombian chrematistics has clearly surprised its rise. Data from monitoring economic activity show it well above forecasts,” the finance minister said.

“Decisions on the interest rate at future meetings will be made with the best possible information at all times, but always with the principle that headquarters is committed to the objective of inflation, recovery, with constant inflation at 3% . , given that this will not be achieved in the short term and given the magnitude and number of shocks suffered by the Colombian chrematistic and the world chrematistic, this necessarily implies a delay that could be long”, has Villar added.

The Colombian peso has depreciated 6.4% against the dollar since June 19, when Gustavo Petro won the presidential election. On Thursday, Petro announced that former finance minister José Antonio Ocampo would return to office during his term. Ocampo is an economist and a classical professor at Columbia University, considered a moderate.

Annual inflation in April was the highest since 2000, partly due to fuel prices. Minister Restrepo announced this month that the country would phase out fuel subsidies, which could have an impact on inflation. In a message from Natixis investment headquarters on Wednesday, analyst Benito Berber said that “it will be up to the Petro company to determine what it does with fuel subsidies once it takes office on August 7”.

“In 2023, we expect inflation to weaken further to around 4% due to calmer cash growth and normalization of supply chains. food and energy, which, in addition to household goods, will help ease annual inflationary pressures. Inflation will not return to the 3.00% target until 2024, in our view,” Berber said. .

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