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According to the Banco de la República’s Monetary Policy Report, analysts contemplate reductions in the monetary policy rate, which would place it at 3% at the end of 2020.
The issuer’s Board of Directors, at its meeting in April, decided to lower the rate to 3.25% from 3.75%.
The Banco de la República Technical Team also foresees the need for a significant relaxation of the monetary stance. However, the timing, magnitude, and rate at which rate changes occur will be primarily determined by four aspects:
– The magnitude and persistence of the supply and demand shocks that actually materialize.
– The way in which agents incorporate into their inflation expectations the shocks generated by the health crisis and confinements.
– Assessment of local financial conditions and transmission of the policy fee.
– The evolution of external financial conditions, their effect on the exchange rate and this on prices.
In this regard, the general manager of Banco de la República, Juan José Echavarría, said during the press conference of the last Board meeting that they will continue to lower rates as the economy needs it.
“We have already reduced 100 (basis points), possibly we will continue to reduce as the situation warrants. The important thing is that when the economy begins to improve, at that time the rates are below those we had a few months ago. We have focused on providing liquidity to make life easier for people who are in debt and to make banks work. There is no point in dropping 100 (basis points) now and 100 the next (Board). We think it is better to go little by little and that there is no capital shock that can affect the economy, ”said Echavarría on that occasion.
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