Colombia’s central bank raises 2023 inflation forecast to 9.5%

BOGOTA (Reuters) – Colombia’s central bank on Tuesday raised its outlook for 2023 inflation to 9.5% from 8.7%, reflecting persistent consumer price growth that has prompted the bank’s board to raise its benchmark interest rate beyond market expectations.

The outlook, issued by the central bank’s technical team, influences the interest rate decisions adopted by the bank’s seven-member board, which raised borrowing costs to 13.25% on Friday.

The persistently high prices this year and next are principally due to increased fuel prices, the team said in its quarterly monetary policy report. Other factors include a weaker peso.

“It is predicted that at the end of 2023 total annual inflation will be around 9.5% and that it will continue its shrinking tendency during 2024, to situate itself at the end of that year at a figure close to 3.5%,” the report said.

The central bank’s long-term inflation target is 3%, but full-year inflation was 13.12% in 2022.

“The descent of annual consumer inflation has been postponed until the second quarter of 2023, when it will converge toward the target rate in the estimate horizon, in part as a result of accumulated efforts in monetary policy,” the report said.

Despite a slowing of growth in annual terms, levels of economic activity remained high in the first three months of the year, the team said. It forecast growth in Latin America’s fourth-largest economy of 3% for the first quarter.

Central bank board chief Leonardo Villar said on Friday the technical team had raised its forecast for economic growth for the full year 2023 to 1%, from 0.84% previously.

Gross domestic product expanded 7.5% in 2022.

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