Colombian Central Banker Says Rate Rises Necessary, Unavoidable

  • Bank co-director Cano sees economy growing 2.7% this year
  • Inflation will slow to target provided bank lifts rates: Cano

Colombia’s central bank will need to continue increasing interest rates to curb inflationary pressures and restore faith in the nation’s monetary policy, according to a member of the bank’s policy committee.

A jump in inflation expectations in the second half of last year is a sign that “the public credibility of the central bank and its policy has been injured,” co-director Carlos Gustavo Cano said. Further interest rate increases are “necessary and unavoidable.”

After reaching a seven-year high of 6.8 percent in 2015, inflation will peak around the middle of 2016 then start to slow toward its 3 percent target, provided policy makers raise borrowing costs further, Cano said in a presentation dated today, published on the bank’s website. Prices have been driven higher by a drought and a slump in the peso.

The bank’s seven-member board raised the benchmark interest rate for a fifth straight month at their January policy meeting, pushing it to 6 percent. The rate increases helped reduce analyst inflation forecasts for two-years ahead to 3.5 percent in January from 3.8 percent the month earlier, according to central bank surveys. Expectations have risen from 3 percent in July.

Cano forecasts that the economy will grow by 2.7 percent this year, down from 3 percent last year. That would be the slowest growth since 2009, while still outpacing most of Colombia’s neighbors.

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