• Inflation at highest since 2008, exceeding all estimates
  • Nomura increases forecast for benchmark interest rate to 7%

Colombian bonds fell after inflation accelerated to its fastest pace in seven years, prompting speculation that the central bank may boost rates to higher levels than some analysts expected.

Local government bonds due in 2018 dropped the most in a month, declining 0.22 centavo to 93.84 centavos per peso at 9:57 a.m. in Bogota. The peso weakened 1.1 percent to 3,370.02 per dollar as oil, the country’s biggest export, fell for a third day to trade near $30 a barrel. The currency’s 120-day correlation with crude touched 0.68 last week, the highest in at least a decade. A reading of 1 means the measures move in lockstep.

The peso’s 29 percent drop over the past year has exacerbated inflation in Colombia, which is also suffering from higher food prices as a severe drought caused by El Nino damages crops. The inflation surprise recorded in January may prompt the central bank to increase borrowing costs to 7 percent in the coming months, according to Nomura Holdings Inc., which previously forecast a hike to 6.5 percent from the current 6 percent.

“Risks for inflation and inflation expectations have intensified, and so we are extending our expectation for the endpoint of the current hiking cycle,” Mario Castro, a strategist at Nomura, wrote in a research report. “Active monetary policy throughout H1 2016 will be necessary to counterbalance the threats to inflation expectations.”

Consumer prices rose 7.45 percent in January from a year earlier, the most since 2008, and exceeded the forecasts of all analysts surveyed by Bloomberg. Consumer-price increases have exceeded the 4 percent upper limit of the bank’s target range for 12 months.

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