Despite the decreasing GDP forecast for this year, the central bank board of Colombia is expected to increase its benchmark interest rate at its meeting on Friday in a final effort to contain excessive inflation.
According to eight out of the fifteen experts questioned by Reuters last week, the seven-member board will raise borrowing prices by 100 basis points to 13%; four analysts anticipate a 75 basis point increase to 12.75%; and the remaining three analysts anticipate a half-point increase to 12.50%.
The interest rate would be the highest it has been since November 1999 in any of the three scenarios.
The Federal Reserve, which is anticipated to raise rates again before the lag effects of its monetary policy tightening cycle are fully felt, and other international peers like the Bank of England would be in line with the bank if it kept up the rate rises.
A 24-year high in inflation, according to analysts, is the main justification for authorities to increase the rate.
The target rate of 3% is projected to be considerably exceeded until the end of next year, with consumer price rises predicted to reach 13.5% in the first quarter.
Ben Ramsey, Head of Latin America Economic Research at JP Morgan, stated that “we are anticipating a substantial increase” due to the fact that inflation expectations are still highly unanchored. “We believe the board will want to send a message that the hiking cycle is coming to an end.”
Since the tightening cycle started in September 2021, the policymakers have raised the rate by a total of 1,025 basis points.
According to analysts, the board will start reducing the rate in the middle of the year, bringing it to 11% by the end of 2023 and 7% in 2024.