Factors such as the lower probability that the central bank of the United States Federal Reserve lower its interest rate more than twice this year, the rise in the risk premiums of emerging countries such as Colombiaas well as inflation, were the conditions that the Bank of the Republic took into account for lower its monetary policy rate by 50 basis points to 11.75%.
Likewise, the technical team of the Colombian central bank revised its economic growth projection to 1.4% by 2024 and 3.2% by 2025.
According to Leonardo Villar, manager of the Bank of the Republicthis review incorporated the positive performance of some activities in the primary and services sectors during the first months of the year, as indicated by recent data from the Economic Monitoring Indicator (ISE).
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He noted that the external context has been affected by the economic circumstances in the US, which show persistent core inflation above the target. a tight labor market and upward revisions in growth, which has increased medium and long-term international interest rates.
Villar noted that with the decision, the board continues with policy interest rate cuts that boost growth, while maintaining a policy stance in line with the goal of driving inflation to its target by mid-2025.
Bank of the Republic.
EL TIEMPO Archive
And to the fourth consecutive drop in the Issuer’s monetary policy rate, was added a new drop in the Current Bank Interest of all types of credit and therefore the usury rate for May.
The Financial Supervision certified the Current Bank Interest for consumer and ordinary credit modalities at 21.02% annual effective for the fifth month of the year.
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The new certification represents a decrease in 104 basis points (1.04 percentage points) compared to that in force in April 2024, the month in which it was 22.06%.
Likewise, the Superfinancial certified the Current Bank Interest for the modalities of larger productive credit, rural productive credit, urban productive credit, popular rural productive credit and popular urban productive credit.
Bank of the Republic
TIME
In productive credit of a larger amount, May rate is 27.15%the rural productive credit of 20.01%, the urban productive credit of 35.72%, the rural productive popular credit of 48.98% and the urban productive popular credit of 56.05%.
In the form of consumer and ordinary credit, the remuneration and default interest rate will be 31.53% and the usury rate will be from that figure, in productive credit of a greater amount of 40.73%, in rural productive credit it is of 30.02%, in urban productive credit of 53.58%, in the popular rural productive credit the rate of remunerative and default interest will be 73.47 and in the popular urban productive credit the rate of remunerative interest and arrears will be 84.08%.
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Villar said that the economic adjustment has been strong and that “The rate increase was significant, one of the highest in history, but that is why we have seen a reduction in inflation of 6 points in 12 months”.
He assured that although this has had costs for the financial system, it has not for stability. “Some banks have had losses due to the provisions they have had to make to face the overdue portfolio and due to the slowdown and recalled that provisions are accounting expenses but the entities continue to generate profits and have solvency and liquidity margins above the regulatory minimums and Rate reductions since December show that the worst of the adjustment is over and the outlook is positive for the portfolio”.
And it has allowed the banks to lower deposit rates by several points, “more than that of the Bank of the Republic, such as that of loans in the consumer and commercial modalities, much higher than those of the Issuer and that reflects the expectation that “The entity’s monetary policy rate will continue to fall.”
Bank of the Republic
TIME
Andrés Giraldo, professor of Economics at the Javeriana Universitysaid “It is not surprising that the credit rate falls more slowly than the Issuer’s rate, since the credit rate is the active rates of the financial system and they define them according to market conditions and are more related to the deposit rates (deposits and CDT) since the banks play with the intermediation margin, the difference between the two”.
(Also read: Usury rate fell from 33.09% in April to 31.53% annual effective in May).
He assured that “Changes in the interest rate do not occur as quickly in the credit rate and this happens in countries where central banks use the interest rate as an instrument of monetary policy.”.
David Pérez, professor at the Faculty of Economics of the University of Los Andessaid “When the interest rate on loans is very high, there may be moral hazard in the credit market: those who borrow are those who are least likely to repay. Lowering the rate can help better lenders borrow, as well as encourage more borrowing.”.
The engines proposed by the Treasury
He Minister of Finance, Ricardo Bonilla He said after the meeting of the board of directors of the Bank of the Republic that the concern is the reactivation of growth to improve tax collection and civil works will be promoted again.
He announced that the Government is going to bring to the Congress of the Republic a bill to expand the debt quota to which an urgent message will be given and then another package of fiscal incentive measures such as reducing the nominal tax rate. corporate, incentives for renewable energies, tourism and activities in the countryside, topics that were analyzed in Paipa.
HOLMAN RODRÍGUEZ MARTÍNEZ
Portfolio Journalist
