Colombia Swaps Rise After Policy Maker Warns of Inflation Threat

  • Three-month swaps are now at their highest since 2012
  • Central bank seeking to reduce inflation from six-year high

Colombia’s swap rates rose to their highest since July 2012 after central bank co-director Carlos Gustavo Cano said there’s evidence that inflation expectations are becoming unanchored.

Three-month swap rates climbed 0.03 percentage point to 4.99 percent at 11:01 a.m. in Bogota. The swaps have jumped 0.35 percentage point since Sept. 25 when Banco de la Republica unexpectedly raised the benchmark rate by a quarter percentage point to 4.75 percent.

“Both surveys and the bank’s probability models show evidence that medium-term inflation expectations are becoming unanchored” from the target, Cano said, according to a presentation published on the central bank’s website. “Therefore, to not act, the credibility of the monetary authority would be at serious risk.”

Colombia’s annual inflation rate accelerated to a six-year high of 5.35 percent in September as dry weather caused food prices to surge while the slump in the peso triggers higher import costs. The central bank targets annual consumer price rises of 3 percent, plus or minus one percentage point.

The next monetary policy meeting is scheduled for Oct. 30. Before last month’s move, the central bank had kept the key rate unchanged for 13 straight months.

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