By Nelson Bocanegra
BOGOTA, April 30 (Reuters) – Colombia’s central bank is expected to raise its benchmark interest rate on Thursday to counter inflation, despite the government’s threat to hike the minimum wage if borrowing costs rise further.
Finance Minister German Avila left the board’s March meeting early and said the government was withdrawing over interest rate rises. Last week, he floated the possibility of returning, and markets will watch on Thursday to see if he attends.
Central bank Governor Leonardo Villar said this month the board cannot meet without a government representative and that Avila’s absence could prevent the board from making decisions.
A Reuters poll earlier this week showed 16 of 25 analysts forecast a 50-basis-point increase to 11.75%. Seven projected a 75-basis-point hike to 12%, and the remaining two said rates would remain unchanged at the current 11.25%.
Policymakers are seeking to rein in inflationary pressures stemming from a 23% minimum wage increase this year and higher public spending that has worsened government finances.
Annual inflation stood at 5.56% at the end of March, well above the country’s long-term target of 3%, which has been missed for the past five years.
“Expectations remain unanchored and, given the acceleration of inflation in the first quarter, the central bank has room to continue raising the policy rate to prevent further deterioration,” said Alejandro Lobo, head of economic research at banking association Asobancaria.
A rate hike would add to the 200 basis points of increases delivered between January and March, which angered President Gustavo Petro, who last week threatened to raise the minimum wage again — a move not seen in Colombia’s recent history.
“We could resort to that … to prevent workers from losing purchasing power as a result of a decision by the central bank,” Labor Minister Antonio Sanguino told local radio on Wednesday, referring to the potential wage increase.
(Reporting by Nelson Bocanegra; Editing by Lisa Shumaker)
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