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With a divided vote of 4 to 3, the board of directors of the Bank of the Republic made the decision to lower its benchmark interest rate again, leaving it at 1.75 percent, the lowest historical level, due to the serious effects of the coronavirus pandemic on the economy.
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To make the decision, the co-directors of the Issuer took into account that, with the cut-off to August, inflation stood at 1.88 percent and inflation without food and regulated items reached 1.57 percent.
Meanwhile, inflation expectations from the surveys for the end of 2021 stand at 2.75 percent, while the two-year expectations obtained from debt papers stand at 2.05, both within the target range. of the Issuer, which is 2 to 4 percent.
But, additionally, the Banco de la República took into account that, in response to the relaxation of isolation measures, a slower rate of deterioration of economic activity is observed, but it continues to contract.
“Along these lines, the Banco de la República technical team estimates that the economy will contract between 6 percent and 10 percent in 2020,” the board said in its statement.
Likewise, it took into account that although the July data reflect a slight improvement in the unemployment rate at the national level (19.8 percent), they show a marked deterioration in the labor market and household disposable income.
According to the Issuer, the majority of interest rates in the financial system have included significantly the reduction in the monetary policy rate, in a context in which there are increases in the volumes of commercial and consumer credit.
And he adds that external financial conditions continue to be favorable and the dynamics of the current account reflects lower external financing needs.
Based on these conditions, the balance of risks of the monetary policy suggests the advisability of reducing the interest rate, as it was finally decided this Friday.
ECONOMY AND BUSINESS – WEATHER
