Central Bank of Colombia raises rate to 6%; sees higher GDP expansion

The Central Bank of Colombia increased its benchmark interest rate on Friday by 100 basis points to 6%, in line with market expectations, amid the rising inflationary pressuresat the same time that it again revised upwards its forecast for economic growth.

This is the highest level of the interest rate since May 2017, according to data from the issuing bank.

In a Reuters poll, the 15 analysts consulted anticipated the magnitude of the increase.

The decision had the vote of four of the seven members of the bank’s board. The other three voted for a 150 basis point increase.

“With the decision adopted, the board continues with the gradual but firm process of adjusting monetary policy in order to ensure a progressive return to inflation to the goal of 3% per year,” said bank manager Leonardo Villar, reading a statement.

This is the sixth consecutive increase in the interest rate since the Central Bank began the upward cycle in September last year for contain inflationwhich is at an annual 8.53% at the end of March, almost three times the inflation target established by the monetary authority, of 3% for 2022.

Villar warned that the prospects for increases in interest rates in USA faster than expected and the impact of Russia’s invasion of Ukraine on international prices could generate additional inflationary pressures.

“In that context, the perspective is that the inflation decrease in the rest of the year and end up around 7%, that is approximately the expectations of economic agents in general, of the bank’s technical team, and obviously it implies a breach of the goal,” said Villar.

“Of course we are very concerned about being far from the goal that we should be meeting (…), that is causing us to respond by adjusting interest rates,” he added.

Meanwhile, the issuer’s technical team revised upwards for the second consecutive month its forecast for economy growing for this year to 5% from a previous 4.7%.

For 2023, the agency maintained its projection of expansion of the Gross Domestic Product (GDP) at 2.9 percent.

According to the median of the Reuters poll, the Central Bank would take the interest rate to 8% well before the end of the year, around July, to try to contain the rising expectations about the prices.

In the consultation, inflation expectations for the South American country soared to 7.1% for the end of the year, from 6.40% in last month’s survey. For the end of 2023, inflation forecasts increased to 4.40%, also above the long-term goal.

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