Colombia | Rates can fall faster: the economy needs it and inflation allows for this

Banco de la República has reduced its policy rate by one percentage point since November 2023. This brings the rate to 12.25%, still a high level, especially considering that March inflation stood at 7.4% and the most recent activity figures point to a stagnant economy.

Key points

• Key points:
• Between November and March, total inflation has fallen from 10.2% to 7.4% (2.8 percentage points). This means that the real rate, which discounts inflation, has increased by 1.8 percentage points, making it a bit more restrictive than that observed when the downward rate cycle began.
• Expected one-year inflation has reduced by a little less than one percentage point over the same period, so the real rate is at best stable, but has not reduced. It is important to note that with inflation expected by analysts for March 2025 at 4.7%, the real rate is 7.2%, one of the highest in our history and clearly restrictive.
• The numbers suggest that perhaps the relief from the Central Bank could be greater in the coming months. The economy needs it and the recent and expected evolution of inflation allows it.

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