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They had to lower the rates

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They had to lower the rates

By: Luis Alfonso Albarracin Palomino

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The decision adopted by some banking entities to reduce by more than 50% the value of the cost of the money that is used to buy goods and services through credit cards, is a desperate measure of the financial system, to prevent them from continuing to lose users or clients due to the inconsistent decisions of the Board of Directors of Banco de La República, to keep the intervention rate high, which is currently at 12.75% and which, given the indicators of the current inflation rate, continues to remain high in the country. These measures, which come from October 2021, have generated a reduction in credit to the different economic agents in the country and, therefore, a greater impact on domestic demand, which is reflected in the decrease in the level of confidence. of the consumer in the first two of this year.

We all know that changes in the level of the intervention interest rate are transmitted almost immediately to the short-term interest rates at which money is lent by financial intermediaries, and after a while, to the interest rates of acquisition and placement of the financial system. This means that the intervention interest rate influences the remuneration of our savings in banks (capture rate) and the cost of the credits that we request from these same entities (placement rate). This transmission of the cost of credit will be applied to new loans, because past disbursements maintain the rate at which they were agreed, according to the contract signed between the entities and the clients.

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The war for clients for the benefit of consumers occurs at a time when the usury rate is at its highest point in recent history, 46%, and that little by little it is more noticeable in the slowdown in consumption in an economy which should experience a drop of five points this year, since it will go from having grown in terms of GDP 7.8% during 2023 to less than 2% for this year, according to analyst forecasts. The free market, open competition and zero cartelization will always be the best inputs for families to benefit from cheap money within their reach.

It is an unprecedented situation if one carefully observes that the cost of money rises to get money in circulation and the banks lower their rates despite the fact that the Central Bank lends them more expensive; perhaps the time when the banks profited from the issuer’s low rates and allocated it to investment in paper and not lending to the people, is over and now there is a finer sense of competition. It is also an unprecedented decision that occurs in the midst of high uncertainty for the Colombian economy, due to double-digit inflation and where all loans have become more expensive in the last year. But the effects of this measure go beyond just possible financial relief. It may even have political implications.

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