Colombia's central bank raised its benchmark interest rate by a quarter of a percentage point to 12.25%, defying market expectations of a hold. The move aims to curb further gains in food prices driven by El Nino, rather than cushion the economy from the shock of August's powerful earthquake.
The central bank's monetary policy committee met on the 30th and lifted the rate by 0.25 percentage point, bringing the benchmark to 12.25%.
Board members were split. Four of the seven directors voted for the quarter-point increase, while two argued for a hold. The remaining member proposed a half-point increase.
Markets had expected no change. In a Reuters survey, 19 of 27 analysts, or 70.4%, forecast a hold, reasoning that the bank would weigh an economy still reeling from the earthquake even in the face of strong price pressures.
The August earthquake killed 335 people and caused widespread destruction of roads, buildings and other infrastructure, according to government estimates. Rebuilding costs are put at at least $9 billion, or about 12.2 trillion won.
The bank nonetheless raised rates because of surging inflation. Annual inflation stood at 6.24% in August, more than double the central bank's 3% target.
Board members were particularly concerned that "drought and flooding caused by El Nino could push food prices even higher." El Nino is a phenomenon in which sea surface temperatures in the eastern equatorial Pacific rise abnormally, triggering unusual weather worldwide.
The committee said the increase "maintains a tight monetary policy stance in line with projections that inflation will decline in 2027," adding that "the effects of El Nino, the earthquake recovery process and fiscal policy measures could become key variables in future rate decisions."
