Colombia held interest rates at a 24-year high on Monday to curb inflation that far exceeds that of regional peers.
(Bloomberg) — Colombia held interest rates at a 24-year high on Monday to curb inflation that far exceeds that of regional peers.Â
The central bank kept its benchmark rate at 13.25% for a second straight month, in line with expectations. The decision was unanimous, bank Governor Leonardo Villar told reporters in Bogota. Â
Colombia was the last of Latin America’s major economies to end record monetary tightening, and is now forecast to be among the last to start easing policy. Chile on Friday became the first, with a bigger-than-expected rate cut of one percentage point. Brazil is expected to follow suit with a half-percentage point cut on Wednesday.Â
Read more: Chile Peso Leads Global Losses After Jumbo Interest Rate Cut
Colombian annual inflation slowed to 12.13% in June, following a gradual easing path from a March peak. That’s still by far the fastest pace among major inflation-targeting economies in Latin America: Brazil, Mexico, Peru and Chile all have inflation rates well below 10%.Â
Colombian core inflation, which excludes the most volatile items of the consumer basket, has accelerated for 20 straight months, while inflation expectations remain elevated. The central bank targets inflation of 3%. Â
Fuel Subsidies
Policymakers have reason to be cautious. The government of President Gustavo Petro is gradually phasing out gasoline subsidies, keeping upward pressure on transport costs, while the El Nino weather phenomenon will likely hit farmers this year, pressuring food prices.Â
Working in the central bank’s favor, the Colombian peso’s 25% appreciation this year — the best performance among major emerging market currencies — is helping to curb import prices.Â
Economists surveyed by the central bank forecast that Colombia will start to cut borrowing costs in October.Â
–With assistance from Rafael Gayol.
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