The dollar is currently trading at 4.643 Colombian pesos (COP), above its all-time high of 4.627, reached in mid-July this year after the Bank of the Republic raised interest rates to curb inflation.
COP is among the most depreciated Latin American currencies so far this year with 12.12% below the Argentine peso (31.14%).
The Brazilian real has appreciated 6.97% this year, the Mexican peso 2.01%, and the Peruvian sol 0.82%.
In the last five days, the Colombian peso has depreciated by 2.43%, in one month by 3.54%, in three months by 6.26%, and in six months by 19.23%.
The Board of Directors of the Bank of the Republic voted to raise interest rates to the highest level in 14 years, reaching double digits for the first time.
In a split decision, a majority voted to raise intervention rates by 100 basis points, while the minority group voted for 50 basis points.
Colombia’s interest rates were raised to 10% from 9% to curb price increases that have pushed inflation above the target since 2021.
Directors stated that the economy remained dynamic in the second quarter.
The technical team raised the GDP growth forecast for 2022 from 6.9% to 7.8%.
Finally, they noted a slowdown in productive activity in the coming months.
The technical team revised its growth forecast for 2023 from 1.1% to 0.7%.
On the other hand, Colombian inflation reached 11.44% year-on-year in September, mainly due to food.
This confirms that “Colombia is experiencing the strongest inflation shock so far this century, and by the end of this year, annual price fluctuations will be in the upper range of our scenarios,” according to a report by Bancolombia’s Economic, Sector, and Market Research Directorate.
“In addition, there would be a greater transmission of the depreciation of the exchange rate to tradable goods, which would be amplified given the high growth that the economy is still experiencing (…).”
“Including the September results and maintaining our monthly forecasts for the last quarter of 2022, inflation would end this year at 12%,” he said.
Credicorp Capital estimates that inflation will be between 10.5% and 11.5% by the end of the year.
In the future, the financial holding company said, “the balance of risks remains skewed to the upside, taking into account the possible adjustment of the minimum wage, the pace of public spending, and the evolution of rising fuel prices.
We, therefore, maintain our expectation for 2023 of 6.5%.”