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At its most recent monetary policy meeting, the Board of Directors of Banco de la República decided to leave its reference rate at 1.75%, which represents a decrease of 25 basis points compared to the current level.
To make this decision, which had a vote of 4 to 3 by the members of the board, it was considered that in August inflation stood at 1.88% and inflation excluding food and regulated items at 1.57%.
“The inflation expectations of the surveys at the end of 2021 are at 2.75% while the two-year expectations obtained from the debt papers are at 2.05%,” said Juan José Echavarría, general manager from the bank.
Likewise, the issuer’s board of directors indicated that economic activity continues to contract despite the relaxation of isolation measures. “In this line, the technical team of the Banco de la República estimates that the economy will contract between 6% and 10% in the 2020 “, he specified.
On the other hand, he indicated that the data for July reflect a slight improvement in the unemployment rate at the national level (19.8%), however, they show a marked deterioration in the labor market and in household disposable income.
“Most of the interest rates in the financial system have included in an important way the reduction of the monetary policy rate, in a context in which there are increases in the volumes of commercial and consumer credit,” said Echavarría.
And he added that external financial conditions continue to be favorable and the dynamics of the current account reflects lower external financing needs.
“In these conditions, the balance of risks of the monetary policy suggests the advisability of reducing the interest rate,” he said.
