Colombia’s central bank is likely to raise interest rates to cool inflationary pressure, according to 21 economists surveyed by Bloomberg.
The economists predicted that the bank’s board of directors will increase the base interest rate from 3.75% to 4% to calm inflation driven by faster-than-expected economic growth, which comes as the combined result of bank lending and consumer spending.
“Given the pressure on prices from the output gaps, earlier-than-expected narrowing and strong economic growth dynamic, the bank will raise [interest rates],” said Camilo Perez, head analyst at Banco de Bogota.
The analysts also said that the bank is likely to extend its policy of buying $20 million a day in order to rein in the peso, which has seen the strongest growth of all Latin American currencies over the last five months. The policy was put in place on September 15, 2010, and was initially supposed to last 4 months, but was later extended to June 17 of this year.
The interest rate rise and the dollar purchases are being utilized as alternatives to capital controls, which former President Alvaro Uribe and Finance Minister Juan Carlos Echeverry are reluctant to resort to.
Colombia’s only billionaire, Luis Carlos Sarmiento Angulo, agreed with these sentiments, stating that “it is not yet time” to consider using capital controls, which would restrict the inflows of foreign capital into the country.