Colombia’s swap rates rose to a three-year high amid speculation policy makers will need to increase borrowing costs further to keep inflation expectations in check.

Three-month swap rates climbed 0.05 percentage point to 4.97 percent at 10:54 a.m. in Bogota, the highest level since July 2012. The swaps have jumped 0.34 percentage point since the central bank on Sept. 25 unexpectedly raised the benchmark rate by a quarter percentage point to 4.75 percent.

Colombia’s annual inflation rate accelerated to 5.35 percent in September, its fastest pace in more than six years, as dry weather causes food prices to rocket while the slump in the peso triggers higher import costs. Banco de la Republica may need to raise its key rate to as high as 5.25 percent by year-end, according to Andres Pardo, the head analyst at Corp. Financiera Colombiana.

"BanRep may need to chase inflation with its lending rate until there are signs consumer prices have eased," Pardo wrote in a report.

Colombia targets annual consumer price rises of 3 percent, plus or minus one percentage point. Inflation has remained above the upper limit of the bank’s target range for the last eight months.

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