Rising Interest Rates Affect Job Generation, According to Colombian Entrepreneurs

On Thursday, March 31, after the Banco de la República increased the interest rate by 100 basis points to 5%, Colombian businessmen assured that the measure could have negative effects on the economic recovery.

For his part, the president of the National Association of Entrepreneurs of Colombia (Andi), Bruce Mac Master, said that “the interest rate increase, by definition, has effects on the entire economy. Of course it affects credit and when they meet their objective, consumption, economic activity and employment. That is why we ask for caution in its application.”

Regarding the decline in the unemployment rate in February, reaching 12.9%, Cabal noted that “there is still a lag of nearly 500,000 jobs that we need to recover after the pandemic. In any case, we believe that it is also an important step forward in the main cities of the country that show the effects of the recovery of the economy in Colombia.”

For his part, the president of Andi stressed that “it is necessary to work more decisively and jointly to close the labor gap between men and women, which despite having decreased by 1.8 percentage points compared to the second month of 2022 with that of 2021, the unemployment rate for women (16.5%) continued to be significantly higher than that of men (10.3%).

On March 31, the end of the month meeting of the Banco de la República was held, at which the board of directors decided to increase interest rates once again. This new increase had been announced some time ago by market analysts.

According to information given by the Bank's manager, Leonardo Villar, it was decided that monetary policy would increase benchmark rates by 100 points. This was done in order to continue implementing the measures necessary to contain inflation.

According to the median of a recent Reuters poll, the bank's board would be inclined to raise the benchmark interest rate by 100 basis points to 5 per cent, the largest increase since November 1999. “Increased inflationary pressures, coupled with the rapid narrowing of the output gap and broad twin deficits (trade and current account deficits), support a more contractive stance on monetary policy,” said David Cubides, an economist at Banco Itaú.

On the other hand, analysts do not rule out that the monetary authority surprises with a greater increase in the cost of money, in order to send a stronger signal to the market seeking to contain inflationary expectations, at a time when consumer prices accumulated a rise of 8.01% at the end of February in annual terms, very far from the target of 3 per cent.

“What the Banco de la República has to do is send a strong message with the aim of controlling inflation expectations,” explained Munir Jalil, BTG Pactual's chief economist for the Andean region, who expects an increase of 200 basis points to 6% in the coming months.

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