Colombia | BanRep raised its monetary policy rate by 150 bp to 7.5%. Unanimous vote.

Summary

In its June meeting, Banco de la República increased the monetary policy rate by 150 basis points to 7.5%. The vote was unanimous.

Key points

• Key points:
• Decision: The Board, in a unanimous decision, increased the monetary policy rate by 150 bp to 7.5% (anticipated by the average of analysts and BBVA Research). With this increase, the Bank accelerates the pace of rate adjustment compared to the March and April meetings.
• Inflation: the statement highlighted that while total inflation declined marginally, core inflation showed a sharp increase, reaching 5.9 per cent in May. At the same time they noted that inflation expectations continued to rise. At the press conference they stressed that part of the current phenomenon stems from a strong global inflationary phenomenon and that it has gradually migrated from a shock concentrated on food to a more generalised one. Translated with www.DeepL.com/Translator (free version)
• Activity: On this front, the Bank revised upwards its economic growth outlook for 2022, from 5.0% to 6.3%. This adjustment is largely due to the data observed in the first half of the year, which have exceeded expectations. On the labor market front, they highlighted that employment has maintained strong growth so far this year, which supports the strengthening of the economic cycle.
• External environment: On the external front, the press release highlighted the result of the current account deficit for the first quarter of the year, which stood at 6.4% of GDP, higher than in the same period of the previous year.
• Our view: The unanimous decision for a 150bp increase paves the way for a continuation of this path in July, especially considering that inflation is expected to accelerate in June to 9.7%. In this order of ideas, we consider that the discussion on the terminal rate is open, around a level of at least 9.0%, if not higher, depending on the evolution of activity.

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