Despite the fact that in recent months there has been a notable increase in the annual variation rate of the CPI (inflation) in Colombia, which means the generalized and sustained increase in the prices of goods and services representative of household consumption in In a country, the Bank of the Republic as an autonomous entity has the capacity to generate policies to control the inflation that is occurring, one of them is by increasing the interest rate.

In this article we will talk about inflation, the interest rate and the viability of acquiring credits at this time.

Guide to understanding inflation in times of debt

We already have a definition of inflation, however, to understand this definition, we will give an example: suppose that in 2020 with $2,000 we could buy 10 loaves, and that in 2022 for $2,000 we could only buy 4 loaves . This means that, for the same $2,000, you can buy fewer loaves of bread than in previous years, that is, inflation reduced the value of the currency over time.

The Bank of the Republic, as a central bank, is an autonomous institution, which means that it has the capacity to make decisions freely without subjection to other instances of the State. The bank’s functions are to issue and manage legal currency, as well as control the monetary, credit and exchange system of the country. The Board of Directors sets an inflation goal, which refers to consumer price inflation. This goal is set with data from the National Administrative Department of Statistics (DANE), where the variation of the consumer price index (CPI) is measured.

¿Cómo reducir la inflación?

To reduce the inflation that is occurring and with the role that the Bank of the Republic has in the credit system, it was decided to use monetary policies by increasing the interest rate, thus generating commercial banks (entities in which we normally have bank accounts ) can increase the interest rate on credits requested by their clients.

The effects that the Bank of the Republic expects with the increase in the interest rate is to stimulate savings and discourage credit, as well as reduce the demand for products, causing in turn a decrease in inflation, because, the lower demand, lower prices. It is clear that these effects do not occur immediately, but are reflected over time.

Therefore, you must be careful if you want to acquire credits at this time despite the high interest rates that can be managed and charged . However, there is also a good opportunity to save and invest with the money you have at your disposal. One of them is the CDT , in which, as the interest rate increases, the returns to be received increase. However, when saving and making investments, care must be taken to avoid generating side effects on the economy.