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Rates of the Bank of the Republic | effects of interest increases – Financial Sector – Economy


For the fifth time in six months, the board of directors of the Banco de la República increased its interest rate this Thursday, which went from 4 to 5 percent annual cash.

This is the interest that the central bank charges commercial banks on very short-term loans, that is, it influences the rates that, in turn, commercial banks pay savers and charge debtors.

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The effects of these measures that people can expect are that the rate at which the prices of the family basket in the country are rising is contained and the world due to the global logistics crisis; that entrepreneurs have expectations that lead them to moderate adjustments in their prices, and that there are increases in interest for savings and for new loans.

From October to this Thursday, the members of the board led by manager Leonardo Villar they have risen five times raising interest rates to the current level of 5 percent. In total, the rise has been 3.25 points.

The most important effect that is expected for the pocket is to curb persistent inflation, which according to the latest Dane data, in February stood at 8.01 percent annually.

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The most important effect expected for the pocket is to curb persistent inflation, which according to the latest data from Dane, in February stood at 8.01 percent per year, far from the Issuer’s target range, which is between 2 and 4 percent.

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According to an analysis by BBVA Research, these additional increases to those already observed will serve to contain the pressure of the high prices of raw materials due to the conflict in Europe and the pressure of the normalization of monetary policy in the United States, facts that add to the global supply crisis caused by the pandemic.

This decision is made to protect the purchasing power of Colombians, which is very important to guarantee a sufficient real income that also allows a good behavior of demand.”, indicated the Minister of Finance, José Manuel Restrepo.

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savings stimulus

To get to this point, it is expected that the hikes of the Issuer will lead to an increase in the rates for savers and for new credits taken by Colombians and companies, as part of the natural transmission effect of the strong adjustment in the intervention rate.

As interest rises, it is expected to further stimulate saving and cool down the high increase in consumption in the country, which contributes to pressuring prices. As Sergio Olarte, chief economist at Scotiabank Colpatria, says, “inflation has been rising a lot, but additionally because, at least so far, what they are showing us in numbers until February is that the economy continues to have inertia and grow in a healthy way. , while unemployment has been falling significantly”.

A) Yes, those who are preparing to establish titles such as CDT may have access to better remuneration over time. Some experts have found that the effect of the Issuer’s increases begin to be felt between 6 and 8 months in commercial banks, and it has already been 6 months since the central bank began its adjustments.

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The pace of the increases is linked to the cost of the money that entities pay in deposits, since to the extent that deposit terms such as CDTs expire or competition between entities increases, some begin to offer higher rates to their savers.

Regarding the credits, the fact of looking for keeping inflation under control may contribute to reducing the cost of housing loans in UVRwhose variation is linked to the consumer price index (CPI).

In other types of loans, companies and individuals who are thinking of borrowing money, if they have already decided surely taking the loans now could generate more favorable conditions that in a few months.

The transmission of the cost of credit is applied to new loans because past disbursements maintain the rate at which they were agreed, according to the contract signed between the entities and the clients. In housing loans tied to the UVR, the variation in inflation is part of the contractual conditions and therefore it is expected that the conditions will improve for existing loans once prices drop.

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