Colombia Central Bank Defies Pressure and Holds Rate at 9.5%

(Bloomberg) -- Colombia’s central bank defied political pressure and held interest rates unchanged for a second straight meeting as policymakers fret about accelerating inflation and the widest fiscal deficit since the pandemic. 

The bank left its benchmark interest rate at 9.5% in a split decision, Governor Leonardo Villar told reporters in Bogota. Four of the seven-member board backed the hold, while three voted for a reduction of half a percentage point. 

“The decision not to change the interest rate maintains a cautious monetary stance pending new information over the coming months to determine the possibility of further interest rate cuts,” the bank said in its statement. “This decision maintains the board’s commitment to bringing inflation back to the target in a context of recovering economic growth.”

Seventeen economists in a Bloomberg survey correctly predicted the decision while nine had forecast a quarter-percentage point cut.

The meeting was the first for three new board members appointed by President Gustavo Petro: Finance Minister German Avila, and co-directors Laura Moisa and Cesar Giraldo. Petro has repeatedly called for lower borrowing costs to revive weak economic growth, but the overhaul of the seven-member board still didn’t give him the result he wanted.   

The nation’s currency and sovereign bonds weakened this month after the unexpected departure of Finance Minister Diego Guevara. Investors are concerned Avila, a long-time Petro ally, will fail to do enough to rein in the deficit.

Inflation accelerated for the second straight month in February, to 5.3%, increasing the chances that price rises will overshoot the target for a fifth straight year. Colombia targets annual consumer price rises of 3%, plus or minus one percentage point.

Colombia currently has the highest interest rate among Latin American peers, after Brazil. Prior to today’s decision, economists surveyed by the central bank had expected the monetary policy committee to lower interest rates to 7.75% by the end of the year.

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