Burneo on rate hike: Adverse impact on demand and GDP has some time

It was announced this week that US inflation reached 8.2% in September, higher than expected, which means that US Federal Reserve (Fed) raises interest rates again next month.

Faced with the possibility of another increase in the US interest rate to curb inflation, the head of the Ministry of Economy and Finance (MEF) Curt Burneo considered it possible that Central Reserve Bank (BCR) follow in the footsteps of the Fed.

Through a tweet, Burneo stated that this possible increase will continue to negatively affect the country’s economy, for which new measures will be proposed.

“The external environment is further complicated by a predictable increase in a larger amount and a repetition by the Fed, which makes credit more expensive and, as BCR will continue to raise interest rates, negatively affect demand and GDP for some time, new measures will be considered to reactivate the supply and demand side,” he said on his Twitter account.

The minister has previously mentioned that the increase in interest rates implies “a weakening of demand and a reactivation of GDP due to an increase in the cost of credit.”

What is MEF doing in the face of rising prices?

In recent statements, Burneo has indicated that inflation control is the responsibility of the BCR, not the MEF.

“Let’s keep in mind that the responsibility for monetary stability, reading stability Prices, this is a BCR issue, not a MEF issue. Technical clarifications on these issues should be made by the central bank,” he said.

The minister believes there is little that can be done to deal with rising food prices as key inputs such as wheat, corn and fuel keep prices high internationally.

“It must be distinguished that certain foodstuffs have an important advantage in expenses, and in the presence of concentrated markets, it is easier to transfer prices. This is not the first time such adverse economic events have occurred, and housewives are wise to replace them. Inflation is now a cost issue and there is little that can be done about it as the prices of wheat, oil or soybeans are out of control,” he said.

Despite this, last month the MEF indicated some measures to fight inflation, such as subsidies for transport, electricity and food stamps.

Consideration of these projects is still pending Council of Ministerswhich will begin its debate next week, the date they hope to be approved.