Central Bank’s continuous raising of interest rates blamed

Latest data shows Colombia’s economic growth is slowing down and is likely to slow down even sharper in 2023.

Global rating agencies have warned that growth will be cut from the current 6.5 per cent to less than two per cent next year. The warning comes as the country’s central bank continues to jack up interest rates in a desperate bid to bring inflation in line with its three per cent target.

According to Fitch Ratings, the rising interest rates as well as inflation might undermine consumption. With inflation rising above the 11 per cent mark, the Central Bank of Colombia raised rates by 100 basis points in its latest policy meeting.

Nearshore Americas reports that Colombia has so far raised rates by 825 basis points since September 2021. As a result, the rising living cost has become a politically sensitive issue in Colombia ever since the country lost the crucial investment grade credit rating last year.

This came about after the government abandoned its plan to raise taxes to finance pandemic spending. Colombia’s fiscal deficit has also widened to a great extent largely due to the pandemic and years of economic slowdown.

The country’s finance minister, Jose Antonio Ocampo, told Reuters recently that regaining investment grade ratings is the top objective of the government.

“The global economy is decelerating very strongly, that will hit us too, high interest rates because of the whole world’s fight against inflation are also a cause,” Ocampo told the newswire, admitting that the economy is losing momentum.