Colombia maintains an unaltered interest rate at 13.25%. The central bank of Colombia has not heeded the numerous voices calling for a decrease and has kept the rate unchanged since May. However, this was the prevailing market expectation.
Neither the government, former finance ministers from various ideologies, nor social agents or the business world have been able to sway the central bank of Colombia’s intention. With 5 votes in favor and only 2 votes against, the bank has decided to maintain the rate at the level it was set in May: 13.25%.
The High Inflation as the Reason
The reason given by monetary authorities has been consistent over the past months: high inflation. For the Banco de la República, the Consumer Price Index (CPI) remains very high, and reducing interest rates could potentially cause prices to rise even further.
However, it should be noted that the steep monthly increases, up to 1.5 percentage points in 2022, are now a thing of the past. Since January 2023, the monthly increase has been only 1.25 percentage points. Since May 2, interest rates have remained unchanged, even as the Colombian economy begins to show worrisome signs of stress and growth stagnation. In this regard, the latest available figures indicate a minuscule economic growth of 0.3%.
For several months, some experts have been warning of the real risk of stagflation: high inflation coupled with negative economic growth. Consequently, the annual inflation rate, which stood at 11.43% in August with a monthly growth of 0.7%, remains higher than what monetary authorities consider reasonable to ease pressure on the cost of living in Colombia.
High Consumer and Mortgage Loan Rates Will Persist
As a result, consumer loans and mortgages will continue to carry high interest rates, making it difficult for many individuals and businesses to access credit. This is not beneficial for an economy that will continue to experience very low growth rates. The central bank of Colombia is aware of this reality, but its priority has been to exert downward pressure on inflation, especially considering the few months left in the year.
In the coming months, negotiations on the real increase in the minimum wage, which affects 60% of formal workers in the country, will begin. Any inflation rate that does not drop below two digits would cause a crisis for companies that will once again have to absorb a significant increase in the wages they pay to their employees.