(Adds central bank, analyst comment)
BOGOTA, Jan 29 (Reuters) - Colombia’s central bank raised its benchmark lending rate a quarter point on Friday, as inflation expectations continue to climb amid a deep currency depreciation, dry weather and reduced oil income.
The split decision by the seven-member board met forecasts by all 27 analysts in a Reuters survey this week. The 6 percent lending rate is the highest level since March 2009, after an increase of 125 points over its last four meetings.
“Oil prices fell again and stood at lower levels than projected for 2016,” the bank statement said.
“This fall involves a further deterioration in the terms of trade and national income. In this environment and with the onset of monetary tightening in the U.S., Colombia’s risk premium rose again and the peso continued to depreciate against the dollar.”
Inflation last year broke out of the bank’s target range of between 2 and 4 percent, ending December at 6.77 percent. Most analysts reckon the rate will stretch over 7 percent before heading down toward the end of the year.
The bank wants inflation to come down toward 3 percent.
Drought, caused by the El Nino weather phenomenon, has led to a spike in food prices and there has been a 39.8 percent depreciation in the peso currency over the last 12 months.
“The magnitude of the devaluation of the peso and the strong El Nino will slow the convergence of inflation to the target, both because of its direct impact on prices and inflation expectations and the possible activation of indexation mechanisms.”
Analysts predict 12-month inflation will have reached 7.06 percent during January.
The central bank also altered its expectations for economic growth this year to a range of 1.5-3.2 percent, with 2.7 percent as the most likely. It forecast growth for 2015 at between 2.8 percent and 3.2 percent, with 3 percent the most probable.
“With fiscal policy unlikely to tighten, monetary policy will have to do the heavy lifting to both re-anchor inflation and contain balance of payments risks,” Capital Economics said in a note to investors. “We’ve pencilled in two more 25bp hikes in this cycle - one in February and one in March. This would leave the policy rate at 6.5 percent.” (Reporting by Julia Symmes Cobb and Helen Murphy; Editing by Chizu Nomiyama)