Meanwhile, if a vaccine is available sooner, herd immunity could be achieved more quickly in the country, lifting some supply-side restrictions and leading to a faster and more robust recovery in expectations and demand. To the extent that the recovery of supply is the dominant factor in these scenarios, the monetary policy trajectory may not be significantly altered from the central scenario. But if there is a scenario in which weak investment is more persistent, either because of uncertainty and/or because of the sequels of the pandemic, the reduced demand could ease the medium-term pressures on inflation. This would result the MPR being held at its technical minimum for longer, and the possibility of deepening the use of unconventional measures. The economy is going through a complex recovery process that faces the challenges of both the pandemic and the political climate following the social crisis that broke out just over a year ago. The central scenario assumes that the latter will follow the institutional path approved by Congress. However, if new political and social tensions materialize that call this path into question, the negative impact on the economy may go beyond what the CBC may be able to neutralize with its traditional and unconventional toolkit. Let us bear in mind that the government, businesses, households, and financial institutions have withstood the pressures of the last 15 months by making extensive use of the buffers accumulated in previous years, which has deteriorated their equity position.
On the contrary, the prices of copper and financial assets reflect a positive evolution. Meanwhile, the financial situation of companies, affected by falls in profits and greater indebtedness, could restrict the capacity to undertake new projects (Figure 11). Add to this the still high uncertainty about the evolution of the sanitary conditions, the rate of growth and its composition, as well as the fears of a recurrence of episodes of violence such as those at the end of 2019, as noted in our November Business Perceptions Report. The measures adopted to stimulate credit to companies found a favorable response in the financial sector, which has helped to mitigate the impact of the crisis. Thus, by mid-year, record levels of granted new credit and restructuring of others were achieved under the FOGAPE lines implemented with government guarantee plus the CBC’s Conditional Facility Conditional on Increased Lending (FCIC). In the last few months, the activity in the commercial portfolio has been reduced, coinciding with decline in the financing needs of the companies, as the gradual reopening of businesses has increased the cash flows. Thus, as per the Business Perceptions Report, more than half of those who had already obtained a loan do not report additional credit requirements. Meanwhile, our Bank Lending Survey for the third quarter shows fewer applications for working capital. This couples with the weak demand for funds for investment purposes that the survey has been showing for several quarters, in line with the lag of that part of expenditure.