Could Colombia press rate-hike button again this year?
The Colombian central bank could hike the key interest rate again this year if inflation expectations do not fall back, according to Credit Suisse.
The central bank board increased the key rate last month by 25 basis points to 4.75% after having kept it at 4.50% for 13 months straight. The decision was unanimous after two monetary policy meetings with split decisions and surprised a majority of analysts who had expected no change given the sluggish performance of the domestic economy.
The hike came amid the 12-month accumulated inflation rate reaching 4.74% in August, above the upper range targeted by the central bank of 2-4% and the highest since 2009.
Inflationary pressures in the country include the rising cost of imports caused by a significant depreciation of the peso and the indirect effects of a strong El Niño weather phenomenon, among them food price spikes.
The minutes from the central bank's latest monetary policy meeting were released Friday and show a board focused on reducing inflation expectations running way above the annual target of 3% (at 4% and more).
In a report, Credit Suisse said its baseline scenario is for the bank to take the key rate to 5% in 1Q16 and to leave it there for the reminder of the year. However, another hike could come in November if inflation and inflation expectations continue to surprise on the upside.
"If inflation expectations continue to become unanchored, we think the central bank could increase the policy rate again this year, rather than in the first quarter of 2016, which is our current baseline."
Higher than expected inflation recently prompted the Peruvian central bank to hike its key rate and the Chilean central bank is expected by a majority of analysts to pull the trigger this month.
The Colombian central bank also maintained the GDP growth forecast for this year at 2.8% with a range of 1.8-3.4%.
Picture: Colombian capital Bogotá.
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