Monday, May 16

Colombia central bank may hike rate higher than initially expected

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BOGOTA — Colombia’s central bank is likely to hike its benchmark interest rate by 150 basis points – the highest figure in two decades – or even more on Thursday, as policymakers around the world struggle to control soaring inflation.

A majority of analysts in a Reuters poll last week – 13 of 16 – estimated the seven-member board will raise borrowing costs to 5.50%, which would mark the largest uptick since 1999.

“Larger inflationary pressures, added to the rapid reduction in the production gap and the ample twin deficits (in trade balance and current account), support a more contractive monetary policy posture,” said David Cubides, an economist at Itau.

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But some analysts would not rule out an even sharper surprise hike in the rate, in a bid by the board to signal more control over the market and contain inflation expectations.

Twelve-month inflation hit 8.01% in February, nearly three times the bank’s long-term target rate of 3%.

“The central bank needs to send a forceful message with the objective of controlling inflation expectations,” said Munir Jalil, head economist at BTG Pactual for the Andean region, who expects a 200 basis-point hike to 6% on Thursday.

A rate rise in Colombia would come as central banks around the world are scrambling to control inflation stoked by global supply-chain issues, the COVID-19 pandemic and Russia’s month-old invasion of Ukraine.

Some analysts estimate the board will take the rate as high as 8% before the end of the year, well above the 5.75% estimated in the previous poll.

The board began rate hikes in September, after reaching a record low in borrowing costs of 1.75% amid the depths of the coronavirus pandemic. (Reporting by Nelson Bocanegra in Bogota Writing by Julia Symmes Cobb Editing by Matthew Lewis)