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The Bank of the Republic of Colombia and the Government agree to raise interest rates to 10%

The Minister of Finance of Colombia, Jose Antonio Ocampo (right) and the manager of the Bank, Orlando Villar.BANK OF THE REPUBLIC

The Central Bank of Colombia will raise its interest rates from nine to 10%, as announced on Thursday by the Bank’s manager, Orlando Villar. This rate is with which the Bank lends money to other financial entities and, therefore, impacts the cost of borrowing in Colombia.

The Colombian Minister of Finance, Jose Antonio Ocampo, was present at the announcement, made before the media and financial analysts. It was his debut as a representative of the Government of Gustavo Petro on the Board of Directors of Banco de la Republica. The minister is an old acquaintance in the marble corridors of the Central Bank offices in downtown Bogota: between 2017 and 2020 he was co-director of the entity and an independent member of its board.

Villar assured that they made the decision based on the most recent inflation data that show that so far this year the cost of living in the country has increased by 10.8%. A figure almost four times higher than the one that -for the entity’s experts- is good for the economy: 3%.

But it was not the only thing that influenced. In the statement, the Central Bank also made reference to concern about the international environment: on the one hand, the United States Federal Reserve raised its rates by 0.75 points for the third consecutive month, which already has an impact on the price of the dollar in Latin America.

On the other hand, there are fears of a global recession in 2023, which for some international organizations –such as the WTO– is imminent. The same Bank of the Republic of Colombia in its report today revised downwards the growth expectations of its economy in 2023: from 1.1% to 0.7%.

With the decision to raise interest rates, the Banco de la Republica gave a new sign of independence. He faces concerns that his decision-making will be influenced by the new government.

The exclamation of independence

The Banco de la Republica is usually an entity that is rarely talked about in Colombia. But in the previous government and in particular in the last presidential campaign, his decisions and his independence were questioned.

Former President Ivan Duque became the first president to appoint all the co-directors that make up the board of directors. Each president can choose two, but due to the resignation of several, Duque appointed the six and among them he incorporated his unpopular former Minister of Finance, Alberto Carrasquilla.

The president, Gustavo Petro, spoke out during the campaign against the way the board of directors of Banco de la Republica works. In a debate he suggested that the board should be made up of sectors of civil society, unions and unions. Also criticized the Bank’s Board of Directors when at the end of last year it began to raise its rates to curb inflation.

The Colombian entity, like its equivalents in the world, faces two alternatives. The first option is to raise rates to curb inflation, even if that also slows the economy. The alternative is to keep them in order to stimulate economic growth, with the risk that this affects the cost of living.

In this dilemma, Petro has been in favor of the path of not increasing the rate. But in today’s meeting the vision that prevailed was the opposite.

The analyst and professor of economics at the Javeriana University, Jorge Restrepo, was one of those concerned about the entity’s independence. Now, however, he considers that the Government has shown signs of respecting it: “The Banco de la Republica has indeed begun to adjust the interest rate less strongly, but I do not consider it to be an electoral political decision. In fact, what I have seen is that there is respect from both the Minister of Finance and the President towards the Banco de la Republica”.

The analyst of the stock broker Alianza Valores, David Cubillos, who predicted that the increase was going to be greater, of 1.5 percentage points, and not 1, thinks along the same lines: “I think that more than anything else what weighed was the vision they have for 2023″. He calculates that in the coming months rates will continue to rise.

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Source: EL PAIS



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