Colombia Steps Up Policy Tightening, Lifts Key Rate to 2.5%
(Bloomberg) -- Colombia became the third major Latin American nation to step up the pace of interest rate increases this month as economies rebound and inflation surges across the region.
The central bank’s board voted 5-2 to lift its benchmark rate by a half percentage point to 2.5%, Governor Leonardo Villar told reporters after the meeting. The other two board members argued for a smaller rate increase of a quarter percentage point.
Traders had priced in the move while a majority of analysts surveyed by Bloomberg expected a quarter point hike.
“Economic activity continues to recover at a faster pace than expected,” Villar said, reading the bank’s policy statement. “Economic growth reflects the strengthening of internal demand, which has been favored in large part by monetary, fiscal and regulatory policy implemented since the start of the pandemic.”
Even after today’s move, the nation’s monetary policy continues to provide strong stimulus, and is likely to remain at an expansionary level for much of 2022, Villar said.
Brazil’s central bank delivered its biggest interest rate increase in almost two decades this week, while Chile also accelerated the pace of monetary tightening this month. Mexico and Peru are also withdrawing stimulus to curb above-target price rises as their economies recover from last year’s crash.
The central bank lifted its forecast for economic growth this year to 9.8% from 8.6%, its fastest pace in recent history. The recent rise in prices for Colombia’s oil, coal and coffee exports is contributing to the rebound.
Colombia’s annual inflation rate accelerated to 4.5% in September, its fastest pace in four years. Across the region, pent-up demand pushed prices higher after authorities eased curbs on movement intended to slow the spread of Covid-19, while rising global food and energy costs also hurt consumers.
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