SURVEY-Market debates between raising 100 or 150 basis points in interest rates in Colombia this month

By Nelson Bocanegra

BOGOTASep 23 – The market is divided between those who expect that the Central Bank of Colombia will moderate the rise in interest rates at its meeting next week as the end of the current monetary cycle approaches, or if it will maintain the magnitude in the face of new spikes in inflation, a Reuters poll showed on Friday.

In the consultation among 17 analysts, eight projected that the issuing bank will raise the reference cost of money by 100 basis points to 10%; while another eight predicted that it will increase it by 150 base points as in the previous two meetings up to 10.50% and one considered that the hike would be 125 basis points to 10.25%.

In the best of cases, with an increase of 100 basis points, the reference rate would be at the levels of July 2008; while if a new rise of 150 base points materializes, the indicator would be at its highest point since July 2001, according to data from the Central Bank.

“Inflation in July and August continued to surprise on the upside by a wide margin (especially in August) and suggests that the Bank’s recent forecasts for the coming quarters will have to be substantially revised upwards,” said Andrés Pardo, chief economist at XP. Investments.

The movements of the interest rate in Colombia are aligned with the monetary policy in the United States and Europe, in the midst of dynamic local consumption and the depreciation of the peso of 10% during 2022, which has fueled inflation to a surprising 10, 84% annually as of August, its highest level since April 1999 and more than triple the Central Bank’s target of 3%.

The agency has increased the benchmark rate by 725 basis points to the current 9%, since the upward cycle began in September last year.

Meanwhile, the median of the survey showed that the Central Bank would take the interest rate up to 11% before the end of the year, to gradually reduce it to 8.25% during 2023, as the market expects a slowdown in the economy from an expected expansion of 7.5% in 2022 to growth of 1.8% next year.

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