Colombia lifts rates for 6th month in a row as inflation tops 7%

Colombia’s central bank increased its benchmark interest rate for a sixth straight month after inflation accelerated to the fastest pace since 2008.

The seven-member board voted to increase the policy rate a quarter point to 6.25 per cent, bank Governor Jose Dario Uribe told reporters in Bogota after the meeting. The decision was forecast by 26 of 33 economists surveyed by Bloomberg with the rest expecting a half-point rise.

Colombia becomes the third country in Latin America after Mexico and Peru to raise interest rates in the past eight days as weakening currencies across the region stoke inflation. Policy makers decided against a steeper increase, to avoid an excessive slowdown in an economy already reeling from a slump in prices for oil, coal and coffee, said Sergio Olarte, an analyst at BTG Pactual’s Colombia unit, who correctly forecast today’s move.

The previous minutes “explicitly mentioned that they prefer quarter-point increases in order to be more predictable and to have more room to see whether the economy is adjusting to lower oil prices,” Olarte said in a phone interview on Wednesday. “The consumer confidence fall, normally a leading indicator for retail sales, confirms the stance of those who want 25 basis-point increases.”

The central bank cut its 2016 growth forecast to 2.7 per cent this month, the slowest pace since 2009, as consumer confidence fell to the lowest in more than a decade. A minority of the board has argued for half-point increases at recent meetings. Consumer prices rose 7.45 per cent in January from a year earlier, the most in seven years, as a severe drought caused food costs to rise 12 per cent, while the drop in the peso makes imported goods more expensive. Colombia targets inflation of three per cent, plus or minus one percentage point.

The Colombian peso has weakened 27 per cent against the dollar over the past 12 months, the most among emerging market currencies after Argentina and Brazil. A smaller decline in its currency led Mexico to unexpectedly raise its key rate on Wednesday by half a percentage point to 3.75 per cent. —