By Nelson Bocanegra and Carlos Vargas
BOGOTA (Reuters) -Colombia’s central bank board raised the benchmark interest rate by 100 basis points to 6% on Friday, its highest level in nearly five years, as it continues increases in response to persistent inflation pressures.
The seven-member board was divided on how sharply to increase the rate, with four policymakers backing the 100-point increase and the remainder voting for a sharper 150-point rise.
The bank’s technical team also raised its growth projection for the year, to 5% from 4.7%.
Colombia – like many countries – is experiencing high inflation figures because of increasing domestic demand, global supply chains issues and higher fertilizer costs due to the war in Ukraine.
Inflation stood at 8.53% in the 12 months to March, almost triple the 3% central bank target.
“The idea is that inflation will fall during the rest of the year and end the year around 7%, that’s approximately where the general market and technical team expectations are,” board chief Leonardo Villar said.
He added that the team’s revision to the estimate – which currently stands at 4.3% – will be published in its quarterly monetary policy report on Monday.
“The prospects of a faster-than-expected increase in interest rates in the United States and the impact on international prices of Russia’s invasion of Ukraine could generate additional inflationary pressures,” the board added in a statement.
The rate decision met the expectations of fifteen analysts surveyed in a recent Reuters poll, who agreed the board would hike the rate to 6%, its highest level since May 2017.
Some analysts had predicted the board could opt for a sharper rise because there is no interest rate vote in May.
The increase brings the total uptick in borrowing costs to 425 basis points since September last year.
Inflation is not expected to return to the targeted 3% level within the next two years, bank board member Roberto Steiner said last week, predicting rate rises will continue.
(Reporting by Nelson Bocanegra and Carlos VargasWriting by Julia Symmes Cobb, Editing by Alexandra Hudson and Jane Merriman)