BOGOTA, Sept 28 (Reuters) - The Colombian central bank’s decision last week to raise its benchmark lending rate amid risks of increasing inflation opens the door for more tightening in the short term, analysts said on Monday.
In a unanimous decision, the seven-member central bank board on Friday raised borrowing costs by a quarter point for the first time in a year, leaving the rate at 4.75 percent.
The unanimity of the vote surprised the market since just days earlier three members had suggested the rate should be held steady amid slowing economic growth and consumer price increases impacted by short-term factors.
Inflation could stretch beyond the 4.74 percent annual rate seen in August, bank chief Jose Dario Uribe said on Monday, and nine out of 20 analysts surveyed recently by Reuters expect consumer prices to end the year at 5 percent or more.
“When the bank joins the group of worried players, as in this case, well, it opens a Pandora’s box, and will have to raise the rate again,” said Andres Pardo, chief economist at investment holding Corficolombiana said. “The market will force it to raise the rate again before year-end.”
The yield on local Treasury bonds that mature in July 2024 rose to 8.077 percent versus 7.882 percent on Friday.
Still, Finance Minister Mauricio Cardenas, who represents the government on the board, on Saturday told Reuters the rate increase would be enough to damp inflation expectations and another increase would not be necessary.
The decision will be taken on a monthly basis and draw heavily on market expectations. Investment bank JPMorgan sees another hike before the end of the year.
“We see them on hold next month, but forced by higher fourth-quarter inflation to hike another 25 basis points in November,” JPMorgan said.
Still, for some analysts the slowing economy is enough to keep the key rate steady going forward. Cardenas on Friday revised down the government’s gross domestic product growth estimate 3.3 percent from 3.6 percent.
“We do continue to think that (the bank’s) decision has the potential to further affect confidence,” said brokerage Credicorp Capital in a note to investors.
“This view also supports our call of stable rates for long.” (Writing by Helen Murphy; Editing by Alan Crosby)