Colombian Central Bank Signals More Rate Increases to Come

  • All seven board members want to continue raising policy rate
  • Minority of board wants to accelerate pace of tightening

A majority of the Colombian policy makers argued for a path of quarter point interest rate increases as the most effective means of curbing the fastest inflation in more than six years.

“The majority of the board considers that it’s appropriate to continue in the process of tightening monetary policy, seeking to reduce the growth in internal demand and improve the anchoring of inflation expectations,” the central bank said in the minutes to its Nov. 27 meeting published today. “A path of increases strengthens the signal of the board’s commitment to its inflationary objectives.”

The bank will raise the policy rate another quarter percentage point, to 5.75 percent, at its Dec. 18 meeting, according to the median forecast in a Bloomberg survey of economists. The bank increased borrowing costs at its last three meetings.

A minority of the seven-member board argued for a faster pace of tightening, in half-percentage point increments. All board members “agree that it’s necessary to continue tightening monetary policy, even though there are differences about the pace,” the minutes said.

“The message is extremely clear that we’re in a rate hiking cycle,” said Sergio Olarte, an economist at BTG Pactual’s Colombia unit, in a phone interview. “The pace of the cycle will be increases of 25 basis points.”

The minority of the board who voted for a half-percentage point increase said this would be a more effective means of improving the bank’s credibility on inflation. The imminent increase in interest rates in the U.S. will tend to strengthen the dollar and weaken oil prices, resulting in pressures on inflation expectations, this group argued.

Consumer prices increased 6.4 percent in November from a year earlier, the fastest pace since 2009. A slump in the peso has boosted import costs and a severe drought caused food prices to jump. The peso weakened 2.5 percent today to a record low of 3331 per U.S. dollar.

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