Colombia’s central bank raises benchmark interest rate to 13%

3:11 pm Thursday, March 30th, 2023

By Nelson Bocanegra and Carlos Vargas

BOGOTA (Reuters) -Colombia’s central bank board raised the benchmark interest rate by 25 basis points to 13% on Thursday, as expected by most analysts who say this could be the last hike, and upgraded its economic growth forecast to 0.84% in 2023.

The decision to increase the rate by 25 basis points was backed by all seven of the bank’s board members, the central bank said in a statement.

A Reuters poll last week found that 23 out of 32 analysts expect the board members to hike the rate by 25 basis points to 13%, while the remaining nine forecast a 50 basis-point hike, which would take the rate to 13.25%.

The increase takes the benchmark rate to levels not seen since November 1999 and mirrors recent decisions from the U.S. Federal Reserve and the European Central Bank, which raised rates amid market volatility and tightening financial conditions.

The interest rate is in “contractive terrain,” bank board chief Leonardo Villar said in a press conference, adding its current level is a response to high levels of inflation.

Colombia’s 12-month inflation through the end of February hit 13.28%, the highest since 1999 and more than four times the bank’s long-term target of 3%.

It is unclear if this will be the last rate increase, Villar said.

“We cannot say if we’ve reached the rate’s maximum point, that’s a decision that we must look at each meeting with the information available,” he said.

Analysts expect a period of stability lasting several months following a forecast rate rise on Thursday before the central bank begins a downward cycle, bringing the cost of money to 11.5% by the end of this year and reducing it further to 7% by the end of 2024.

The bank’s technical team raised the economic growth outlook for Latin America’s fourth-largest economy this year to 0.84%, up from 0.2% previously, the statement said, but added that economic activity continues to be characterized by a “significant slowdown.”

(Reporting by Nelson Bocanegra and Carlos VargasWriting by Oliver GriffinEditing by Sandra Maler and Richard Chang)