BOGOTA (Reuters) – Colombia’s central bank will have to front load interest rate hikes in the first half of this year in order to get a grip on inflation and maintain its hard-won credibility, the International Monetary Fund (IMF) said on Tuesday.
The Andean country’s economy grew 10.6% last year, beating expectations, as the entertainment, retail and manufacturing sectors soared, the government’s DANE statistics agency reported earlier on Tuesday.
However, pressures amid supply-chain issues mean Colombia’s central bank will need to act quickly in the first half of this year to anchor inflation expectations and insure against upside inflation risks, said Hamid Faruqee, head of the IMF’s Colombia mission.
“Controlling inflation … poses a challenge to Colombia’s central bank, a challenge that we see in other countries as well, including the United States,” Faruqee said during a virtual press conference.
Colombia’s inflation came in at 5.62% in 2021, its highest in five years, while 12-month inflation in January hit 6.94%, more than double the central bank’s target of 3%.
“For Colombia we see the need for additional interest rate hikes, front loaded in the first half of this year and broadly speaking we’re seeing markets have similar expectations shifting in that direction for some other major central banks,” Faruqee added.
While the IMF forecasts Colombia’s economic growth at 4.5% this year – with help expected to come from consumption, investment and exports – the multilateral organization will revise its outlook following DANE’s report, Faruqee added.
“We won’t know the final numbers yet until we reexamine our forecast,” he said. “Obviously we’ll make some adjustments as we look at the DANE release today.”
(Reporting by Oliver Griffin and Nelson Bocanegra; Editing by Sam Holmes)