Monday, August 8

Colombia central bank raises interest rate to 2.5% in majority decision

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BOGOTA — Colombia’s central bank board raised the benchmark interest rate by 50 basis points to 2.5% on Friday, accelerating rate increases meant to control inflation well-above the target rate.

The board was once again divided on how sharply to increase the rate, with five policymakers backing a half-point uptick and the remaining two backing a quarter-point increase.

The bank also raised its outlook for economic growth this year to 9.8%, from 8.6% previously, just one month after the most recent increase in its prediction.

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“A tendency toward growth is discernable in the economy… including much more than what had been predicted last month,” said Finance Minister Jose Manuel Restrepo, who represents the government on the board.

Domestic demand was stronger thanks to monetary policy implemented since the beginning of the coronavirus pandemic, board chief Leonardo Villar said, reading from the board’s statement.

Raises are likely to continue for a good portion of next year, Villar said.

Analysts said the bank may increase the pace of rate rises and favor another 50 basis point uptick at its next meeting in December, especially as the economy needs less stimulus.

“The bank is trying to get ahead a little and get closer to the market as it looks to control inflation expectations,” said Camilo Perez, head of economic investigations at Banco de Bogota.

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The market was divided about how sharply policymakers would increase the rate. Of the 19 analysts in a Reuters poll last week, 10 predicted a 25 basis point increase, while the remainder projected 50.

Inflation looks set to continue to rise amid global supply chain delays and stronger-than-expected demand as Colombia’s economy recovers from the coronavirus pandemic.

The bank’s technical team raised its inflation estimate for 2021 to 4.9% and to 3.6% for 2022, well above the 3% target, and analysts say the 12-month figure may reach 4.78% in October…

(Reporting by Nelson Bocanegra, Carlos Vargas and Oliver Griffin; Writing by Julia Symmes Cobb; Editing by Andrea Ricci, Raissa Kasolowsky and Daniel Wallis)