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This is how the new manager of Banco de la República analyzes the economic expectations for the year

The new general manager of the Banco de la República, Leonardo Villar Gómez, is a prominent economist graduated from the Universidad de los Ándes in Bogotá, he has doctoral studies (PhD) in Economics, in the United States. A little over a month ago, he assumed the reins of the Issuing Bank of Colombia, replacing Juan José Echavarría.

Most of his colleagues and friends define him as a calm, moderate man and in a very good mood. He is a great connoisseur of the financial system and it is not the first time that he has taken a seat on the Board of Directors of Banco de la República.

Between the months of February 1997 and March 2009, he was co-director of the institution, which also makes him a great connoisseur of inflation and interest rate behavior.

He is passionate about economics and as he himself says … he is very excited to return to an institution that loves a lot.
In fact, the Banco de la República is not only the governing body of the Colombian financial system but it is also one of the most prestigious entities in the country.

Villar Gómez maintains that, as happened last year, this 2021 will also be a period of great challenges.

One of them is the recovery of employment and the other the reactivation of economic activity, since the uncertainty is still very great.

Even so, he is perceived as optimistic and points out that the outlook for 2021 is of high growth, with which part of the GDP drop observed in 2020 may be reversed.

However, the good performance of the economy that the country showed before the pandemic will probably be reached by the end of 2022.

He explained that the fact that the prices of the family basket have fallen sharply in 2020 are signs of the intense recession that Colombia is facing.

On these and other issues of national interest, this is how Mr. Villar Gómez spoke.

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This year the range of inflation is similar to that of 2020, between 2% and 4% with an average of 3%. Taking into account that the impact of the pandemic will continue for a longer time, is it possible that the average CPI figure is below 3%, as happened last year, since there are no threats of inflationary pressures?

The sharp contraction in demand associated with the pandemic put downward pressure on inflation, generally taking it to levels below those established as a goal by central banks.

This has made it easier to implement strongly expansionary monetary policies and bring interest rates to historically low levels.
The fact that inflation has fallen so sharply is, on the one hand, a negative sign of a very intense recession, and, on the other hand, it is something that gives flexibility to the bank’s actions to support the economy.

The perspectives of the technical team of Banco de la República coincide with those of the vast majority of market analysts in that inflation would gradually approach 3% per year, which is the established goal.

The benchmark interest rate is at the lowest level in history. There are considerations to think that it can continue to decrease a little more. Do you think it could be 1.25%?

As in many countries in the world, the Banco de la República must help the inflation rate get closer to the established goals, which are higher than current inflation rates. The search for this purpose is what explains that today we have policy interest rates of 1.75%, also corresponding to historical lows.

Going forward, decisions on these rates will be adopted by the Board of Directors based on the best information available at all times.

The Government estimates that GDP may rebound considerably this year and may close 2021 at 5%. The Bank is just as optimistic, what is the issuer’s projection in this term?

The Bank’s technical team projections have been updated in the recent Monetary Policy Report (published at press time).

The uncertainty is still very great. These figures are always being reviewed with the latest information available.

In any case, the outlook for 2021 is of high growth, with which part of the decline observed in 2020 will be reversed.

The levels of activity that we had before the pandemic will probably be reached by the end of 2022.

While no one has a crystal ball on what might happen to the exchange rate, there are analysts who say that this year it may range between $ 3,500 and $ 3,600. What perception does Dr. Villar have?

One of the greatest successes of the Banco de la República’s monetary and exchange policy in recent decades has been to allow a flexible exchange rate.

As in the case of the currencies of advanced countries, the exchange rate of the Colombian peso moves freely in response to the multiple impacts suffered by the supply and demand of foreign currency.

In this context, it is impossible to predict what might happen to the exchange rate, since it depends on too many factors, both internal and international.

The exchange rate observed each day largely reflects what the different players in the currency market are expecting about the future.

What is your biggest concern this year in economic terms or what is the main challenge that the country will face?

The biggest challenge for the year that begins is to consolidate the recovery in employment and economic activity after the severe recession we faced in 2020.

For this recovery to be lasting, it must be done in a context that guarantees the sustainability of public finances and macroeconomic stability in the medium and long terms.

Despite the fact that there is a lot of hope for the covid vaccine and that there are those who think that this gives a break in markets and in the economy, do you think this year will be as hard as the last?

Although uncertainty about the pandemic continues, there are positive expectations regarding the vaccination process.

The existence of vaccines contributes in an important way to calm the panorama, both globally and for the specific case of Colombia.
This will take a few months to be reflected in the health indicators, but it will most likely help consolidate the economic recovery process that has been underway since mid-2020.

Let me ask you a personal question … you repeat at the bank, of course in another position, but did you ever think that you could return to the Issuer?

What I feel is the enthusiasm to return to an institution that I love very much, where I worked for 12 years in the past.

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