Colombia Stuns Economists With Bigger-Than-Expected Key Rate Hike to 4%

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Colombia surprised most economists with the largest interest rate rise in almost two decades as policy makers try to get soaring inflation back under control. 

The central bank lifted its benchmark rate one percentage point to 4%, governor Leonardo Villar said in a press conference after the meeting. Five of the seven board members voted for the move, while the other two wanted a smaller increase of three-quarters of a percentage point. 

“This decision is compatible with the dynamism of an economy which has recovered rapidly and doesn’t require the same amount of monetary stimulus that the bank supplied, opportunely, during the Covid crisis,” Villar said, reading the policy statement.

Local markets were closed when the decision was announced. The move was forecast by 2 of 25 analysts, with the majority expecting a smaller increase of three-quarters of a percentage point. 

Colombia’s move followed Chile’s decision earlier this week to deliver the biggest interest rate hike in more than 20 years. Policy makers across Latin America have rushed to withdraw monetary stimulus after inflation burst out of its target range in one country after another as economies rebound from the pandemic.  

Read More: Chile Surprises Investors With Biggest Rate Hike in 20 Years

Inflation ended 2021 at 5.6%, the fastest pace in five years, and analysts surveyed by the central bank predict it will slow to 4.5% by the end of the year, which would still be above the bank’s target. 

Colombia has now raised interest rates by 2.25 percentage points since September.

The Andean economy grew at its fastest pace in more than a century in 2021, according to the government’s estimate, as curbs to limit Covid-19 infections were eased. The economy will expand 4% this year, faster than Brazil, Mexico, Peru and Chile, according to analysts surveyed by Bloomberg. 

Read More: Colombia’s Duque Says Central Banks Should Fine-Tune Rate Hikes

Policy makers in developed countries are also grappling with galloping price rises. U.S. Federal Reserve Chair Jerome Powell said this week that the policy committee is ready to raise interest rates in March.

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