If interest rates drop too much, there will be no sustainable growth: Villar


In the middle of Corficolombiana’s 2024 economic outlook forum, the manager pointed out that “if we come out and say today like crazy, we will lower the interest very fast, tomorrow we can increase the growth in the next quarter.” Villar said.

He pointed out that Colombia is not yet in a situation where interest rates can start to go down. “We are going in the desired direction, but we are not in the situation that countries have found that have started to lower their interest,” he said.


He added that “what we have not achieved is to increase the sustainable growth of the Colombian economy. The low inflation gives the certainty of prices that will increase less, the possibility of having very low nominal rates in interest as would be the case if inflation were low.

In the same way, the manager emphasized that inflation has decreased, but not to the level that is desired to think about lowering interest rates, at the meeting to be held in December. “We are going in the desired direction, but we are not in the situation that countries have found that have started to lower their interest,” he added.

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It is worth mentioning that since April of this year, interest rates have been at 13.25%, due to the high level of inflation that still exists in Colombia and despite the fact that there has been a slight reduction in this figure.

“Having autonomy, the bank will not worry about the last quarter or the next quarter, but what is the outlook for the next three, four years and possibly more years than that,” he pointed out.

According to Villar, this level of interest rate is mainly due to the nature of inflation in Colombia, which shows a slow decline throughout the year and is currently at 10.48% annual data in October.

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Four elements

He mentions four main reasons why the cost of living in Colombia will not decrease significantly. The first thing that has to do with behavior is food inflation in the country.

“The food shock in Colombia is generally strong, they increased between 2021 and 2022 in nominal terms, (…) the price of food has not yet started to change, the price has remained there, we have not seen a fall and in that sense it helps. explain why we have not seen forces to reduce inflation,” said Villar.

The second element is the behavior of regulated prices, including energy and rent. The third has to do with indexing the country’s goods and services.

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“The indexing mechanisms we have in Colombia are very strong and are reflected in the price of rentals adjusted based on last year’s inflation,” he added.

And, fourth, is the nature of the exchange rate in Colombia, which in recent years has shown wide volatility and even reached historical figures.

“The exchange rate will have a strong depreciation in 2021 and 2022 in the case of Colombia, in part this is due to what is happening in other countries, Colombia has a very strong deterioration in the country of risk and there is a loss of confidence due to the situation. fiscal, it is reversed and if we look at the exchange rate today we are at a level very similar to what it would have been if from 2022 we behave in the countries we compare ourselves to, “he said.