Colombia central bank surprises market with 25-basis-point rise on inflation worries
TLT•Colombia’s central bank raised its benchmark interest rate by 25 basis points to 12.25%, surprising most of the market. Annual inflation was 6.24% through August, more than double the bank’s 3% target.
1. Rate decision
Four of the central bank’s seven board members backed the increase, two voted to hold rates and one favored a 50-basis-point hike. In a poll of 27 analysts, 19 had expected rates to remain at 12%, six forecast a 50-basis-point hike and two expected a 25-basis-point increase.
2. Inflation concerns
The board cited persistent consumer price rises and said August inflation reached an annual rate of 6.2%, with food inflation at 6.1% and regulated-price inflation at 6.8%. It said the onset of the El Niño weather phenomenon could add upward pressure to food and regulated prices.
3. Economic pressures
The board said economic growth may be slowing as international financial conditions have become “somewhat tighter.” Reconstruction after an August 10 earthquake that killed 335 people is expected to cost at least 30 trillion pesos, about $9 billion, according to government estimates.
