Colombia expected to raise benchmark rate to 12.50%

What happened

Colombia's central bank is expected to raise its benchmark interest rate, which means the central bank's base borrowing cost, by 25 basis points on Friday to 12.50%, according to a Reuters poll of analysts. This would likely be its last increase this year as inflation expectations rise.

Confirmed

Global impact / market context

A higher benchmark rate raises interest costs for companies and households. That can slow spending and investment, and it makes future profits worth less today, pressuring stock valuations.

Analyst inference

Annual inflation hit 6.29% through September, more than double the 3% target, and El Niño weather is pressuring food prices. A minority of analysts expect rates to hold, citing weakening economic activity in July and August.

Analyst inference

What to watch

1. The Friday policy meeting decision itself, and whether the rate lands at 12.50%, holds at 12.25%, or rises to 13.00% as the poll's range of forecasts suggests. Confirmed
2. Analysts propose watching food prices as El Niño drought and fires pressure them, because higher food costs could keep inflation above target and delay any rate cuts. Proposed
3. Watch whether weakening economic activity indicators for July and August push the central bank to signal a pause, since slower growth could reduce demand for borrowed money. Analyst inference

Evidence

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