Monetary Policy Report, January 2024

Inflation continues to fall, but it is above the 3% target, and it is projected to continue falling until it reaches it in 2025. Economic growth is low, but it would recover, and by 2025, economic activity would reach a path that can be sustained over time without causing unwanted changes in inflation, employment, or the external balance. The current monetary policy interest rate is compatible with the convergence of inflation to the target in 2025 and with the recovery of economic growth in the next two years. • Annual inflation has been decreasing for a year and is projected to continue, with inflation at 5.5% in December and the 3% target to be reached in 2025. In March, total inflation was 7.4% and completed a year of reductions from the maximum recorded a year ago (13.3%). In the first quarter of this year, all the main components of inflation fell (food, services, goods, and regulated). • The decrease in inflation has been greater than expected due to the behavior of food prices and some goods. • The lower pressures of the exchange rate on prices, the slowdown in demand, and the completion of adjustments in fuel prices contributed to reducing inflation. • The reduction in inflation has been limited by the rise in some service rates, largely because several of these were updated with the high inflation observed (what is known as indexing). • The accumulated effect of monetary policy actions, weak demand in the presence of excess productive capacity of the economy, and an exchange rate behavior that would continue to exert downward pressures on prices will continue to contribute to the decrease in inflation and its convergence towards the 3% target. • There are some risks that could reduce inflation more slowly than projected, such as possible pent-up increases in public services and transport rates, an unexpected increase in the exchange rate and/or adverse weather conditions that affect food prices. The economy would recover in 2024, and by the end of the following year, it would reach a path that would not cause unwanted changes in inflation, employment, or the country’s external balance. • After the significant economic growth in 2022 (7.3%) that placed the GDP at high levels, the expansion of economic activity for 2023 was 0.6%. In the first quarter of 2024, the economy would have improved compared to what was observed at the end of 2023, driven by high levels of activity in the agricultural sector that reflect the high supply recorded in these months. • The necessary adjustment of economic activity occurred amid the accumulated effects of monetary policy actions to combat high inflation, high external financing costs, and low levels in businessmen’s and consumers’ confidence indicators. • The labor market continues to show unemployment rates at low levels compared to its history, although with deteriorations in employment in recent months. • Going forward, economic activity would continue to recover. This would occur in an environment of less restrictive external financing conditions, and reductions in the monetary policy interest rate, as inflation gradually approaches the 3% target. o For 2024, economic growth of 1.4% is projected, driven by consumption and despite a weak expected investment performance. o For 2025, growth would be 3.2%, with consumption that would continue to improve, an investment that would recover from the very low levels of 2024, and a gradual recovery of exports. • The lower growth of the Colombian economy has been reflected in a reduction of the broad external imbalance observed in 2022, which results in less vulnerability to changes in international conditions. Given the decline in inflation and its expectations, the slowing of domestic demand, and a more sustainable external balance, the Board of Directors of the Banco de la República decided at its April meeting to continue the monetary policy interest rate reductions, bringing it to 11.75%. • The stance of monetary policy has contributed to ameliorating the country’s macroeconomic imbalances, such as high inflation, excess spending and credit, and the wide external deficit. • In the context of decreasing inflation and adjusting some macroeconomic imbalances, the Board of Directors began to reduce the monetary policy interest rate from December 2023, with a total reduction of 150 basis points by April. • The current monetary policy interest rate is compatible with inflation, reaching the 3% target in 2025 and sustainable economic growth over time. Box 1 - Un indicador de los servicios de transporte para medir la actividad económica colombiana Autores: Karen L. Pulido-Mahecha, Juan Sebastián Silva-Rodríguez y Juan Felipe Carmona-Pascuales Box 2 - Evolución reciente y perspectivas de la inversión Autores: Camilo López, Andrés Herrera, Nicol Rodríguez y Sebastián Quintero Box 3 - Evaluación del error de pronóstico macroeconómico de 2023 Autores: Jonathan Alexander Muñoz Martínez y Julián Mauricio Pérez Amaya

Banco de la República is celebrating its 100th anniversary in 2023. This is a very significant anniversary and one that provides an opportunity to highlight the contribution the Bank has made to the country’s development. Its track record as guarantor of monetary stability has established it as the one independent state institution that generates the greatest confidence among Colombians due to its transparency, management capabilities, and effective compliance with the central banking and cultural responsibilities entrusted to it by the Constitution and the Law. On a date as important as this, the Board of Directors of Banco de la República (BDBR) pays tribute to the generations of governors and officers whose commitment and dedication have contributed to the growth of this institution.1 Banco de la República’s mandate was confirmed in the National Constitutional Assembly of 1991 where the citizens had the opportunity to elect the seventy people who would have the task of drafting a new constitution. The leaders of the three political movements with the most votes were elected as chairs to the Assembly, and this tripartite presidency reflected the plurality and the need for consensus among the different political groups to move the reform forward. Among the issues considered, the National Constitutional Assembly gave special importance to monetary stability. That is why they decided to include central banking and to provide Banco de la República with the necessary autonomy to use the instruments for which they are responsible without interference from other authorities. The constituent members understood that ensuring price stability is a state duty and that the entity responsible for this task must be enshrined in the Constitution and have the technical capability and institutional autonomy necessary to adopt the decisions they deem appropriate to achieve this fundamental objective in coordination with the general economic policy. In particular, Article 373 established that “the State, through Banco de la República, shall ensure the maintenance of the purchasing power of the currency,” a provision that coincided with the central banking system adopted by countries that have been successful in controlling inflation. In 1999, in Ruling 481, the Constitutional Court stated that “the duty to maintain the purchasing power of the currency applies to not only the monetary, credit, and exchange authority, i.e., the Board of Banco de la República, but also those who have responsibilities in the formulation and implementation of the general economic policy of the country” and that “the basic constitutional purpose of Banco de la República is the protection of a sound currency. However, this authority must take the other economic objectives of state intervention such as full employment into consideration in their decisions since these functions must be coordinated with the general economic policy.” The reforms to Banco de la República agreed upon in the Constitutional Assembly of 1991 and in Act 31/1992 can be summarized in the following aspects: i) the Bank was assigned a specific mandate: to maintain the purchasing power of the currency in coordination with the general economic policy; ii) the BDBR was designatedas the monetary, foreign exchange, and credit authority; iii) the Bank and its Board of Directors were granted a significant degree of independence from the government; iv) the Bank was prohibited from granting credit to the private sector except in the case of the financial sector; v) established that in order to grant credit to the government, the unanimous vote of its Board of Directors was required except in the case of open market transactions; vi) determined that the legislature may, in no case, order credit quotas in favor of the State or individuals; vii) Congress was appointed, on behalf of society, as the main addressee of the Bank’s reporting exercise; and viii) the responsibility for inspection, surveillance, and control over Banco de la República was delegated to the President of the Republic. The members of the National Constitutional Assembly clearly understood that the benefits of low and stable inflation extend to the whole of society and contribute mto the smooth functioning of the economic system. Among the most important of these is that low inflation promotes the efficient use of productive resources by allowing relative prices to better guide the allocation of resources since this promotes economic growth and increases the welfare of the population. Likewise, low inflation reduces uncertainty about the expected return on investment and future asset prices. This increases the confidence of economic agents, facilitates long-term financing, and stimulates investment. Since the low-income population is unable to protect itself from inflation by diversifying its assets, and a high proportion of its income is concentrated in the purchase of food and other basic goods that are generally the most affected by inflationary shocks, low inflation avoids arbitrary redistribution of income and wealth.2 Moreover, low inflation facilitates wage negotiations, creates a good labor climate, and reduces the volatility of employment levels. Finally, low inflation helps to make the tax system more transparent and equitable by avoiding the distortions that inflation introduces into the value of assets and income that make up the tax base. From the monetary authority’s point of view, one of the most relevant benefits of low inflation is the credibility that economic agents acquire in inflation targeting, which turns it into an effective nominal anchor on price levels. Upon receiving its mandate, and using its autonomy, Banco de la República began to announce specific annual inflation targets as of 1992. Although the proposed inflation targets were not met precisely during this first stage, a downward trend in inflation was achieved that took it from 32.4% in 1990 to 16.7% in 1998. At that time, the exchange rate was kept within a band. This limited the effectiveness of monetary policy, which simultaneously sought to meet an inflation target and an exchange rate target. The Asian crisis spread to emerging economies and significantly affected the Colombian economy. The exchange rate came under strong pressure to depreciate as access to foreign financing was cut off under conditions of a high foreign imbalance. This, together with the lack of exchange rate flexibility, prevented a countercyclical monetary policy and led to a 4.2% contraction in GDP that year. In this context of economic slowdown, annual inflation fell to 9.2% at the end of 1999, thus falling below the 15% target set for that year. This episode fully revealed how costly it could be, in terms of economic activity, to have inflation and exchange rate targets simultaneously. Towards the end of 1999, Banco de la República announced the adoption of a new monetary policy regime called the Inflation Targeting Plan. This regime, known internationally as ‘Inflation Targeting,’ has been gaining increasing acceptance in developed countries, having been adopted in 1991 by New Zealand, Canada, and England, among others, and has achieved significant advances in the management of inflation without incurring costs in terms of economic activity. In Latin America, Brazil and Chile also adopted it in 1999. In the case of Colombia, the last remaining requirement to be fulfilled in order to adopt said policy was exchange rate flexibility. This was realized around September 1999, when the BDBR decided to abandon the exchange-rate bands to allow the exchange rate to be freely determined in the market.Consistent with the constitutional mandate, the fundamental objective of this new policy approach was “the achievement of an inflation target that contributes to maintaining output growth around its potential.”3 This potential capacity was understood as the GDP growth that the economy can obtain if it fully utilizes its productive resources. To meet this objective, monetary policy must of necessity play a countercyclical role in the economy. This is because when economic activity is below its potential and there are idle resources, the monetary authority can reduce the interest rate in the absence of inflationary pressure to stimulate the economy and, when output exceeds its potential capacity, raise it. This policy principle, which is immersed in the models for guiding the monetary policy stance, makes the following two objectives fully compatible in the medium term: meeting the inflation target and achieving a level of economic activity that is consistent with its productive capacity. To achieve this purpose, the inflation targeting system uses the money market interest rate (at which the central bank supplies primary liquidity to commercial banks) as the primary policy instrument. This replaced the quantity of money as an intermediate monetary policy target that Banco de la República, like several other central banks, had used for a long time. In the case of Colombia, the objective of the new monetary policy approach implied, in practical terms, that the recovery of the economy after the 1999 contraction should be achieved while complying with the decreasing inflation targets established by the BDBR. The accomplishment of this purpose was remarkable. In the first half of the first decade of the 2000s, economic activity recovered significantly and reached a growth rate of 6.8% in 2006. Meanwhile, inflation gradually declined in line with inflation targets. That was how the inflation rate went from 9.2% in 1999 to 4.5% in 2006, thus meeting the inflation target established for that year while GDP reached its potential level. After this balance was achieved in 2006, inflation rebounded to 5.7% in 2007, above the 4.0% target for that year due to the fact that the 7.5% GDP growth exceeded the potential capacity of the economy.4 After proving the effectiveness of the in

Introduction. The Colombian economy continued to make progress in the adjustment process required to correct macroeconomic imbalances and control the inflationary pressure that had accumulated during the first half of 2023 from the various supply shocks and rapid expansion of demand during 2021 and 2022, which exceeded the economy’s potential growth. The ongoing economic adjustment has been made possible by the moderation of domestic demand growth and the gradual unwinding of the supply shocks that raised production costs. Domestic demand began to slow down in the last few months of 2022 and contracted -0.2% in the first quarter of this year due to slower growth in household consumption and a fall in gross capital formation. Lower international prices for raw materials, the gradual normalization of supply chains, and the appreciation of the exchange rate, in turn, have contributed to dissipate supply shocks. This has been reflected in a decrease in annual producer price inflation from a level of 19.2% at the end of 2022 to 4.7% in June 2023.1 The sluggishness of domestic demand has been reflected in a progressive slowdown in economic activity. Thus, the GDP registered an annual growth of 3.0% in the first quarter of 2023, a rate equivalent to one third of the average annual growth noted during the first three quarters of 2022 (9.1%). According to the economic monitoring indicator (EMI) prepared by DANE, this loss of strength continued in April and May as variations in this indicator of -0.8% and 0.6%, respectively, were registered compared to the same months in 2022. These results were lower than those seen in March (1.4%) in the seasonally and calendar-adjusted EMI series. This suggests that GDP growth will continue to decline in the second quarter and is consistent with the technical staff’s forecast that GDP growth will be slightly below 1.0% for 2023. In spite of the ongoing economic slowdown, the labor market continues to show strength as can be deduced from the continuous decline in the unemployment rate in the national aggregate up to the moving quarter ended in May (10.4%). This is its lowest value since the beginning of the covid-19 pandemic.2 The slowdown in economic activity was, in part, expected to result from the restrictive monetary policy adopted by Banco de la República to control inflationary pressure. A less expansionary fiscal policy than in 2022 may also be contributing to the lower economic activity based on the forecasts presented in the 2023 Medium-Term Fiscal Framework (MTPF-23). Added to this was a slowdown in foreign demand that was relevant for the country due to the lower growth of our trading partners in an international context of high monetary policy interest rates, inflation rates that exceeded their targets, and high uncertainty generated by the prolongation of Russia’s invasion of Ukraine. The Board of Directors of Banco de la República (BDBR) has been reiterating the need to proceed with this adjustment process in its various communications in order to achieve a gradual return of inflation to the 3.0% target, correct macroeconomic imbalances, and ensure the sustainability of economic growth in the long term. The constitutional responsibility that falls on Banco de la República, which was emphasized in the last Report to Congress, requires maintaining low and stable inflation in line with economic policy in general so as to support sustainable economic growth and a bankable foreign balance. Monetary policy decisions have been adopted with the support of the solid institutional and technical basis that supports the inflation targeting regime based on the experience accumulated over more than two decades by the Central Bank. The specific motives that the BDBR has had for undertaking a monetary tightening process and the strongest ones since Banco de la República adopted the inflation targeting strategy have been complex and diverse in nature. Inflationary pressure initially came from foreign and domestic supply shocks that pushed the costs and prices of food and other consumer products up. Added to this was pressure from the exchange rate. These shocks led to an increase in inflation expectations, and this triggered a process of price indexation which was exacerbated by the excess demand that emerged in 2022. The monetary policy response sought to reduce excess demand, contain the rise in expectations, and limit the effects of price indexing by increasing interest rates. All of this creates the right conditions to allow inflation to begin to decline as the supply shocks subside and thereby alleviate cost pressure. This is a process that is being accomplished albeit with some delay, but which, given the time that the monetary policy has been in place, has already begun to produce results as shown by the recent decline in the inflation rate and the downward revision of expectations for it at different periods. In accordance with the constitutional mandate to ensure coordination of monetary policy with the general economic policy in addition to mitigating inflationary pressure, the monetary adjustment has been fulfilling the purpose of correcting macroeconomic imbalances that jeopardize the stability of the Colombian economy. With respect to this, there is no doubt that the 7.3% GDP growth in 2022 was outstanding since it was more than double the global growth (3.5%) and far exceeded the expansion of Latin America and the Caribbean (3.9%) based on IMF figures. Such high economic strength brings important gains in well-being, particularly when it reduces unemployment rates as has been the case in Colombia. However, this growth is unsustainable because it is based on a fiscal situation that is largely in deficit and a worrying increase in household indebtedness. This generated an excess of aggregate demand that not only put upward pressure on inflation and expectations for it but also expanded the current account deficit of the balance of payments to historically high levels for several years. The current account deficit went from an already high level of 5.6% of the GDP in 2021 to one of 6.2% of the GDP in 2022 and was one of the highest seen in Colombia. The increase in the foreign imbalance in 2022 occurred in a year in which international crude oil, coal, and coffee prices remained at favorable levels. This contributed to the positive performance of exports. Nevertheless, in order to cover supply shortages, the economy significantly increased its demand for imports thus preventing a reduction in the foreign imbalance. As a result, the Colombian economy resorted to greater foreign indebtedness either as portfolio investment inflows or as direct indebtedness. All this shows how vulnerable the economy is when it maintains a level of spending that significantly exceeds its income. The restrictive monetary policy, together with the increase in the tax burden, has been inducing a progressive adjustment of these imbalances. The slowdown in domestic demand that began in the fourth quarter of 2022 was accompanied by a moderation in household consumption that had grown 3.0% in the first quarter of 2023 compared to a 9.5% increase in 2022. The latter has been reflected in a slowdown in consumer credit which went from growing at a close to 23% rate per annum at the end of the third quarter of the previous year to just under 7.0% per annum in mid-June 2023. If such a rapid expansion of consumer credit had continued, it could have generated an unsustainable situation in terms of households’ creditworthiness. Likewise, gross capital formation, which performed outstandingly well in 2022, began to show adjustments in its main components. The main source of this correction has been investment in machinery and equipment which, in the first quarter of the year, showed declines in both quarterly and annual terms, mainly in the transportation equipment sector. Along with the progress in correcting the macroeconomic imbalances, total inflation broke off the upward trend it had maintained until March 2023. Indeed, after reaching a level of 13.1% at the end of the previous year, total inflation remained stable at around 13.3% during the first three months of 2023, then began to declineas of April and reached 12.1% in June. Food was the item that contributed most to this change in trend since its annual variation went from 27.8% last December to 14.3% in June. This variation has been offset to some extent by the increase in inflation of regulated products due to successive increases in gasoline prices. Core inflation (excluding food and regulated products), in turn, continues to show rigidity as it stood at 10.5% in June and thus reflected price indexation processes. The services sub-basket has been particularly affected by the indexing which has been compounded by labor cost pressures, rising food prices that have put upward pressure on eating out and the high demand for entertainment services. This behavior should gradually diminish as the effects of monetary policy are eventually passed through to the economy, and the downward trend in inflation is reflected in a downward revision in the public’s expectations of price changes. This is in line with the technical staff’s forecasts and the market’s expectations that anticipate declining inflation over the next two years. 1 This corresponds to the annual change in the domestic supply PPI. 2 At the close of this Report, data was released from the General Integrated Household Survey for June in which the unemployment rate remained stable in its seasonally adjusted measurement of the national aggregate for the quarterly moving average (10.3%) although there was a reduction in the June data. Boxes Box 1 - Recent Changes in the Savings-Investment Balance and its Financing Box 2 - Economic Effects of Indexation and its Prevalence in Colombia Box 3 - Resilience of the Colombian Financial System: Analysis Based on the Recent Period of Banking Stress in

The study empirically investigated the monetary theory of inflation using Nigerian data from 1980 to 2022. Annual data on the inflation rate, monetary policy rate, exchange rate, interest rate, and money supply were sourced from the Central Bank of Nigeria (CBN), the Nigeria Bureau of Statistics (NBS) and the World Development Indicators (WDI). The study regressed inflation rate as the dependent variable on the monetary policy rate, exchange rate, interest rate and money supply as the independent variables using the Autoregressive Distributed Lag (ARDL) model. The findings revealed that monetary policy rate, exchange rate, interest rate and money supply (Monetary Policy) were not statistically significant in influencing inflation in Nigeria. The study found that the first inflation lag was statistically significant at the one per cent level. The finding implies that inflation expectations cause inflation in Nigeria. The study recommends that the Nigerian government should formulate and implement other economic policies along with the monetary policy to control prices to reduce inflation in Nigeria

In the second half of the 1960s, Swiss inflation began to accelerate in line with the worldwide surge in prices.Despite a strong desire to stabilize prices, the SNB was powerless in curbing inflation as long as Switzerland insisted on maintaining a fixed exchange rate.Furthermore, as the postwar system of fixed exchange rates began to collapse, Switzerland faced massive inflows of speculative capital triggered by expectations about a substantial revaluation of the Swiss franc and other European currencies against the U.S. dollar.Since the SNB could sterilize at best a small portion of the attendant increase in its foreign exchange reserve, the capital inflows led to an excessive expansion in the money supply, adding fuel to the already serious inflation problem.Notably in 1971, the Swiss monetary base expanded enormously. 1 Not surprisingly, the year-on-year inflation rate, measured in terms of consumer prices, shot up to a peak of 11.9 percent in December 1973.The Swiss public regarded this development as a major calamity.In the past, persistently high inflation had never arisen during peace-time.A realignment of exchange rates in 1971 provided only temporary relief to Swiss authorities.Another incipient speculative assault at the beginning of 1973 forced the authorities to float the exchange rate of the Swiss franc.As a result, the SNB acquired the ability to combat inflation through a tight monetary policy.Under the

During the second quarter of 2025 (2025),global financial markets operated in a context of high uncertainty, driven by trade tensions, fiscal concerns, and geopolitical risks. However, economic activity showed signs of resilience, and markets recorded partial recovery. International financial conditions remained relatively favorable, despite episodes of volatility. In Colombia, inflation continued to decline, although it remained above the target set by Banco de la República (the Central Bank of Colombia, Banrep), which maintained a prudent monetary policy stance in response to a slower decline in inflation, increased external uncertainty, and domestic fiscal challenges. The international environment remained characterized by high uncertainty, although with signs of economic resilience. - Global financial markets began the second quarter of 2025 (2Q25) amid trade tensions driven by new policy announcements by the United States. However, progress in trade negotiations allowed for subsequent partial recovery. - Fiscal uncertainty in the US intensified, especially amid the legislative debate over a new fiscal package approved on July 4. - Geopolitical tensions in the Middle East increased, causing increased volatility in the markets. - Despite these factors of uncertainty, global economy maintained the resilience it has shown in recent years. Inflation remained above the targets set by central banks in most developed economies, leading them to adopt cautious policy stances. In Latin America, inflation and monetary policy conditions were heterogeneous. - In the Euro Zone, inflation returned to the 2.0% target, while in other economies it remained above the target set by central banks. - Central banks maintained a cautious stance, although some cut their interest rates due to specific domestic conditions. - Interest rate expectations were revised upward following the anticipated cuts after the trade-related news in April. - Inflation remained above target in most countries in the region. In Colombia, it continued to decline but remained above Banrep’s target. - Monetary policy decisions in the region were mixed. Banrep cut its rate in April and kept it unchanged in June, amid a moderate reduction in inflation, increased external uncertainty, and domestic fiscal challenges. - Although further cuts in Colombia’s monetary policy rate continue to be anticipated, these are expected to be more moderate than projected at the end of the previous quarter. Debt markets reflected heterogeneous dynamics in both advanced and emerging economies. US Treasury bonds depreciated at the long end of the curve, reaching their highest yields since 2023. In contrast, other developed economies saw gains across their curves. - In Latin America, most sovereign securities appreciated, while in Colombia, TES (bonds issued by the Colombian Government) continued to depreciate, reflecting persistent fiscal risk in a scenario of lower liquidity and higher volatility. - At the end of June, Moody's and SyP downgraded Colombia's local currency credit rating, causing TES to lose their investment grade. - Foreign investors were net buyers of TES in the spot market during the quarter. However, following the loss of investment grade, they made significant sales in June and early July. Regarding the foreign exchange market, the Colombian peso appreciated in a context of global dollar weakness. - The US dollar weakened amid fiscal and trade uncertainty in the United States, as well as moderation in the country’s economic growth expectations. - Latin American currencies appreciated, although with high volatility due to sensitivity to trade-related news. - The Colombian peso (COP) appreciated, but to a lesser extent than its regional peers, due to local fiscal concerns. Commodity prices showed a mixed performance, driven by geopolitical and trade-related factors, while stock markets continued to perform favorably. - Oil prices declined due to increased production by the OPEC+ (Organization of Petroleum Exporting Countries and its allies) and expectations of lower global demand. - Precious metals such as gold and silver reached all-time highs due to demand for safe-haven assets, while industrial metals and agricultural commodities fell, reflecting the manufacturing slowdown and trade tensions. - Stock markets in developed countries rose following declines in April, with recovery supported by easing trade tensions and solid corporate results. - In Latin America, stock indexes extended the positive momentum observed in the first quarter of the year. In Colombia, the MSCI Colcap also maintained its upward trend, although with a lower trading volume.

INTERRELATIONSHIP OF INFLATION, EXCHANGE RATE AND INTEREST RATES IN THE CONTEXT OF HUNGARY'S STRATEGIC POLICY

1.1 Macroeconomic Summary As anticipated, headline inflation during the second quarter remained stable at 7.2%, while core inflation (6.0% in June) continued to decline at a slightly faster pace than expected. The cumulative monetary policy effects and the unwinding of specific shocks that affected prices continue to assist in the convergence of inflation to the 3% target. In the second quarter, the increase in food prices was greater than expected due to a rebound in the perishable food basket, offset by a larger-than-foreseen decline in the year-to-year variation of other CPI baskets. This Report projects a higher annual increase in the food CPI versus the April yearend estimates due to recent supply shocks that are expected to gradually dissipate and to increases in international transportation costs, notwithstanding favorable weather conditions. Increases in the CPI for regulated items would continue to ameliorate, albeit at a more gradual pace, given higher-than-expected energy and transportation price adjustments. As foreseen in the previous Report, core inflation would continue to decline, falling to 5.0% by the end of the year. However, this forecast faces upside risks originating mainly from housing rents. Should these prospects materialize, noting that food and regulated items have a particularly high level of uncertainty, headline inflation for 2024 (5.7%) would surpass its April estimate (5.5%). As a result, the indexation of certain CPI groups to higher inflation could play a part in delaying the convergence of inflation to the target in 2025. Nevertheless, the collective effects of monetary policy, together with an output gap expected to fall in negative territory – more so than projected in the previous Report – along with modest exchange rate pressures, would assist in maintaining inflation’s downward trend, placing it at 3.0% by yearend 2025. These forecasts remain highly uncertain, mainly associated with the future behavior of the exchange rate, the degree of persistence of the supply shocks that affected food prices, and the outcomes of the provisions regarding adjustments in public services and transportation, among others.

This paper aims to determine the effect of central bank monetary policy on financial asset prices in Indonesia from 1990 Q1 to 2020 Q4. Furthermore, this study measures the responses of three different asset prices: bond yield, stock price and exchange rate to central bank rate shocks using the structural vector autoregression model. The impulse response functions showed that tightening monetary policy in Indonesia appreciated the exchange rate in four periods, lowered stock prices in five periods, and increased bond yield in all periods. These results imply that an increase in monetary policy interest rate appreciates exchange rate, lowers the stock price, and reduces bond yield. The result of variance decomposition showed that the most dominant central bank rate prediction was in predicting forecast error variance of bond yield but the smallest in predicting forecast error variance of the exchange rate. These results corroborated the hypothesis that tightening monetary policy in Indonesia increases financial asset prices. It also highlighted the informational role of monetary policy interest rate in stabilizing financial asset prices.

Monetary policy can be so dicey or delicate that it requires great tact from the monetary authority. Contractionary monetary policy, when pushed too far, drags the economy to recession while` extreme expansionary monetary policy sinks the economy to liquidity trap. Central banks are in charge and are expected to favorably run the monetary policy by adjusting interest rates, influencing local lending rates, buying foreign currency, printing money, and use of other tools to modulate currency exchange rates, manage inflation, etcetera, with a sole target of creating a healthy economy. This study looks into the effect of money supply rate, exchange rate and interest rate on inflation rate in Nigerian economy between 1991 and 2021. With secondary data, the variables are found to be of mixed order of integration and, therefore, the ARDL model is our parameter estimator. Our model is found to be stable and our empirical investigation reveals that both money supply rate and interest rate in Nigeria have no significant effect on Nigeria’s inflation rate while exchange `rate has a significant inverse effect on Nigeria’s inflation rate – the less favorable the exchange rate, the more biting the inflation. The study is wrapped up `with a recommendation that Nigerian government/authorities should rise up to occasion of fixing the insecurity challenges of the nation so as to create safe environment that can attract local investments as well as foreign direct investments which, among other benefits, will be favorable to Nigeria in exchange rate.

During the first quarter of 2025 (1Q25), global economy began to slow down, contrasting with the resilience observed in previous periods. This change was associated to new trade tensions between the US and its main partners, resulting in a downward revision of global growth expectations and an increase in risk perception among investors. Additionally, this report includes an analysis of market movements during the early days of April, following the announcements regarding the US trade policy during that period. Global growth expectations were revised downward, particularly for the US and its major trading partners, due to a deterioration in the external environment and increasing trade tensions. - The adjustment in projections for developed economies reflects the uncertainty generated from trade policy announcements made by the new US administration. - The international financial environment was marked by high volatility, driven by the growing uncertainty in both global commercial and fiscal areas. - This uncertainty intensified after the implementation of new tariffs by the US in early April, causing significant adverse reactions across various international financial markets. - So far in April, markets have shown an unusual performance: The US dollar has depreciated steadily, while Treasury bond yields (Treasuries) have increased, an unusual combination in a context of increased risk aversion. Inflation continued to exceed the targets set by central banks in major developed economies after the rebound observed in the fourth quarter of 2024. - In response to this environment, central banks in advanced economies adopted a cautious monetary policy stance, reflecting persistent inflationary pressures and global uncertainty arising from changes in trade policy. - Some central banks, considering specific domestic conditions, continued to lower their interest rates despite the uncertain global environment. - Monetary policy expectations were revised towards a path with deeper interest rate cuts, in a context of high volatility and uncertainty regarding economic growth and fiscal sustainability. - In Latin America, inflation and inflation expectations showed a mixed performance, although they generally remained above the targets set by the region's central banks. - In Colombia, although inflation continued its downward trend, upward surprises in January and February moderated the pace of correction and exerted upward pressure on inflationary expectations. Locally, the Board of Directors of Banco de la República (the Central Bank of Colombia) maintained the Monetary Policy Rate (MPR) at 9.5%. This response is due to the slowdown in the reduction of inflation and inflation expectations at the beginning of the quarter, as well as signs of higher dynamism in economic activity. - This decision reflected a cautious stance against the high levels of uncertainty, both locally and globally. - Financial markets in Colombia continue to anticipate cuts in the MPR, although these expectations were adjusted towards smaller reductions than those projected at the end of 2024. - In the first days of April, expectations for rate cuts intensified due to a greater global risk perception. As for the debt markets, US Treasuries appreciated during 1Q25. However, they lost value in April following tariff announcements by the US administration. - In Latin America, most sovereign bonds appreciated during the quarter, aligned with the movement of Treasuries and expectations of deeper cuts in monetary policy rates. However, this trend moderated in April due to an increase in global risk aversion. - Contrasting with other countries in the region, Colombian government bonds continued the devaluation trend that began in 2024, reflecting domestic fiscal uncertainty, which was accentuated in April by rising external uncertainty. - Despite the unfavorable international context, emerging countries continued to receive positive foreign portfolio investment inflows during 1Q25, extending the favorable trend observed throughout 2024. - In Colombia, foreign investors partially reversed their selling trend in Colombian Treasury Securities (TES) observed since 2023 and increased their participation in the local public debt market. - In early April, sales resumed in line with the greater global uncertainty. Regarding the foreign exchange market, the US dollar weakened vis-a-vis currencies from both developed and emerging economies during 1Q25, driven by the expectation of an economic slowdown in the US, increased fiscal and trade concerns, and the possibility of lower rates by the Federal Reserve. - Latin American currencies appreciated during the quarter, supported by domestic factors such as the adjustment of monetary policy expectations and corrective movements in their exchange rates. - The Colombian peso appreciated in 1Q25, driven by the global weakening of the US dollar and the attractiveness of high local interest rates for international investors (carry trade). - The peso began to depreciate during the first days of April, pressured by the rising global uncertainty and a decline in international oil prices.

The purpose of this study is to determine the influence of macroeconomic factors (inflation and exchange rates) and monetary policy (interest rates and money supply) on the growth of Islamic fintech in Indonesia. The study utilizes data on macroeconomic factors, monetary policy, and the growth of Islamic fintech (specifically Sharia P2P Lending) in Indonesia. The sample consists of 50 monthly observations from May 2021 to June 2025. The analysis technique employed is multiple linear regression, utilizing t-tests and F-tests for hypothesis testing. The results demonstrate that inflation negatively affects the growth of Islamic fintech, whereas the money supply and Bank Indonesia (BI) interest rates have a significant positive impact. In contrast, the exchange rate showed no significant direct influence. Simultaneously, macroeconomic factors and monetary policy significantly affect the growth of Islamic fintech in Indonesia. The study concludes that the primary drivers of Islamic fintech growth are inflation, BI interest rates, and the money supply, while the exchange rate does not play a significant role.

Mohan (2008) presents a comprehensive review of the macroeconomic policy developments in India over the past four decades with a particular emphasis on the last two decades. India transformed from a tightly controlled socialistic economy to one of the emerging market economies with accelerating growth. Before the transformation, the Indian economy was characterized by many regulations and controls, the nationalization of banks, and fiscal deficits that were financed by the central bank. The economy was in a low growth state, and the inflation rate was high. After the transformation, fiscal deficits have been reduced, and their direct financing by the central bank is banned. Monetary policy has been geared towards achieving a low and stable inflation rate. The critical regulatory changes took place after the balance of payments crisis of 1990 ‐1991. My comments are mostly directed to the current challenges rather than to India’s historical experience. The growth acceleration from 3% in the 1960s to 1980s, to 5% in the 1990s, to 8% after 2003, as shown in Mohan’s Table 1, is impressive, but still not perfect. It is impressive because it shows steady improvement as various reforms were taking place. It does not seem perfect because, first, the growth rate did not jump to a high range, say 8 ‐10%, immediately after the critical set of reforms in the beginning of the 1990s, and, second, in the near future, the growth rate does not seem likely to climb up to the 10% level that China has been able to achieve in the last decade. Why couldn’t India achieve doubledigit growth, if China could do it? The frustration is understandable but it may be important to recall some of the other growth experiences in Asia. Japan achieved double-digit growth in the 1950s and 1960s. South Korea, Taiwan, and Singapore achieved near 10% growth in the 1980s and 1990s. They all relied upon manufactured exports and climbed up the ladder of sophistication as they grew. Sustained 10% growth was possible only because those countries enjoyed export booms and their export items went from low-tech to middle-tech, and eventually to high-tech goods, as they chased the country just ahead of them. This view is known as the flying geese pattern of Asian growth. In a sense, 10% gross domestic product (GDP) growth was helped by very high (much higher than 10%) growth in the exports of toys and shoes followed by motorcycles and TVs, and then petrochemicals, steel, and automobiles.

The paper was an empirical analysis of the stability of money demand in Zambia between 1984 and 2021. The money demand function tries to explain the factors that influence people’s demand for money in an economy. The determinants included real income, exchange rate, inflation rate and interest rate. Using E-views 9.0, an appropriate model was estimated for statistical analysis. In the analysis of data, unit root tests were done to check the order of integration of the variables. Furthermore, to test for long term equilibrium relationships among variables the Augmented-Dickey Fuller (ADF) was used to test procedure on the residuals. Out of the many ways of testing for normality, this paper chose the Jarque-Bera test to conduct the normality test on the variables. From this study’s results, the bound test showed that there is a long run cointegration relationship among demand for real money balances, real GDP, interest rates, exchange rate and inflation in case of broad money aggregates. In the long run, all the independent variables are significant determinants of money demand which will be positively affected by percentage changes in exchange rates and negatively by percentage changes in gross domestic product, inflation, and interest rate. The study found that for the implementation of monetary policy in any economy to be successful, it relies heavily on the instruments of monetary policy used as well as the structure of the economy. However, for emerging economies such as Zambia, there are special hurdles that may make the implementation of monetary policy less effective in the achievement of the monetary policy goals. From the findings, it is recommended that as the process of modernizing monetary policy frameworks are implemented in addressing emerging economic challenges, there is need to continue with monetary aggregates in monetary policy conduct.

This study examines the effect of monetary policy on the Nigerian balance of payments adjustment from 1980 to 2023. Objectives are; to examine the effect of monetary policy variables such as Exchange rate, Inflation rate, Balance of trade, Real Gross Domestic Product and Domestic Credit on the Nigerian balance of payments adjustment, investigate the presence of structural change effect of monetary policy and its significant effect on the balance of payments adjustment in Nigeria and evaluate the significant speed of adjustment monetary policy variables such as Exchange rate, Inflation rate, Balance of trade, Real Gross Domestic Product and Domestic Credit on the balance of payments adjustment within the period under study. The study employed the following advanced econometric techniques: the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests, the Chow test, the ECM model, the OLS model, statistical tests and the Co-integration test. Based on the above econometric techniques, it was observed that the group unit root test results show that the variables used in the study became stationary after first differencing at the degree of order one (1). There is Co-integration (long-run relations) among the variables used in the study. Our results indicated rejection of the three null hypotheses of this study and acceptance of the alternative three hypotheses, which stated that Nigerian monetary policy variables, such as the Exchange rate, Inflation rate, Balance of trade, and Domestic Credit, have a significant effect on the Nigerian balance of payments adjustment. There is evidence of a structural change in the effect of monetary policy on the Nigerian balance of payments adjustment, with a breakpoint found around 1998 and 1999. Nigerian monetary policy variables used have significantly adjusted the balance of payments in the Nigerian economy over the three-year period of the study. The researcher recommends that there is a need to manage domestic liquidity wisely in view of the tremendous pressure on the balance of payments due to excess money. A determined effort to mobilize resources through private savings and the implementation of prudent fiscal policy, including the efficient collection of tax revenues and the rationalization of government expenditure towards growth-enhancing and poverty-reduction programs, will also enable the government to pursue its development programs without relying on monetizing its budget deficit. The overall concentration on monetary tools should be reduced, and other policy instruments should be employed to correct the balance of payment fluctuations. The government should also be cautious of budget deficits that are often financed by internal borrowings.