• Inflation priced in by local TES bonds climbs to 5.68%
  • Central bank seen lifting benchmark rate at meeting Friday

Colombian bond yields show traders have raised their expectations for inflation over the next two years to a record high, reinforcing forecasts that the central bank will raise its benchmark borrowing rate Friday.

The breakeven rate, a gauge of traders’ inflation bets measured by the gap in fixed-rate and inflation-linked bond yields, rose to a high of 5.68 percent yesterday and hovered near that level as of 12:24 p.m. in New York. Policy makers will raise the overnight rate for the second time this year Friday, increasing it to 5 percent from 4.75 percent, according to 32 out of 34 analysts surveyed by Bloomberg. One expects a half-percentage point increase while another sees no change.

“Inflation expectations continue to deteriorate,” said Camilo Perez, the head analyst at Banco de Bogota, who expects the rate to end this year at 5.25 percent. “There aren’t a lot of reasons to be optimistic about inflation at this point.”
Colombia’s annual inflation rate accelerated to its fastest pace in more than six years last month as dry weather causes food prices to rocket while the slump in the peso triggers higher import costs. Consumer prices rose 5.35 percent in September from a year earlier, exceeding all 29 forecasts compiled by Bloomberg. The bank targets inflation of 3 percent, plus or minus one percentage point.

The central bank raised the nation’s policy rate a quarter percentage point to 4.75 percent last month, the first increase in more than a year, saying it was needed to curb inflation expectations.

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