Strong adjustment to contain inflation: Central Bank rises another 125 basis points and leaves the interest rate at 4.0%

Unanimously, and confirming market expectations, the Central Bank Council agreed at its Monetary Policy Meeting to increase the monetary policy interest rate by 125 basis points, from 2.75% to 4.0%.
In this way, the issuing institute repeats the decision of October, when it had already increased 125 basis points, and now left the rate at its highest level in almost eight years.
Likewise, the BC does not rule out future adjustments and predicts that “the TPM will continue to increase in the short term, standing above its nominal neutral level – which is consistent with the inflation target of 3% – for much of the monetary policy horizon.”
“This will help the economy resolve the imbalances it has accumulated, which have contributed to the rapid rise in inflation. With this, the activity gap will be gradually closed, helping the recent inflationary dynamics not to have a persistent impact on the price formation process,” the official statement said.
In its statement today, the Central Bank’s main focus is inflation. In this sense, he recognizes that “the expectations of households and companies have had a setback in the most recent, marked in part by greater concern about inflation.”
According to the issuing institute, “annual inflation continued to increase in recent months, standing at 6.7% in November. It highlights the rise in volatile prices (10.5% per year to November), especially of fuels, food and services that were reactivated after the pandemic. The annual change in core CPI – which excludes volatile prices – stood at 4.7% in November, in line with the IPoM projections for September. Various indicators of inflation expectations have increased in recent months and, although they foresee a moderation of the same towards 2023, at 24 months term they are above 3%,” he says.
The decision of the Central Bank was one of the two expected news of the week from the issuing institute, since tomorrow Wednesday it will present its Monetary Policy Report for December in which it will give its new projections for inflation and growth next year.
In its statement today, the issuing institute also warns that “the IPoM that will be published tomorrow contains the details of the central scenario, the sensitivities and risks around it, and its implications for the future evolution of the TPM”.
With its decision today, the BC confirmed the market projections that bet on an increase of up to 125 basis points, as expected by the Survey of Economic Expectations (EEE) applied to analysts and the recommendation of economists from the Monetary Policy Group.
What’s more, in the future, according to the Survey of Economic Expectations, the market expects the rate to reach 5% within five months to remain at that level until the end of 2022.

Original source in Spanish