July 8, 2016 / 8:07 PM / 2 years ago

Colombia central bank minutes show concern about 2017 inflation target

BOGOTA, July 8 (Reuters) - Some members of Colombia’s central bank board warned that “great volatility” overseas and persistent price increases may put the 2017 inflation target at risk, the minutes of the last monetary policy meeting showed on Friday.

The seven member board voted by majority in June to raise the benchmark lending rate for a tenth straight month as stubbornly high inflation continued to hit more than double the 2-4 percent target range set by the bank.

Twelve-month inflation was 8.20 percent through May - data used during the meeting - as food costs and a depreciation of the peso currency continued to pressure consumer prices.

The bank lifted lending rates a quarter point to 7.5 percent, leaving it 300 points higher than in September.

“Some members who voted for the rate rise thought that great volatility overseas and signs of persistent high inflation present a serious threat to meeting the bank’s long-term inflation,” the minutes said.

Analysts said the tone of the minutes read as though more tightening could be on the cards.

“Until the bank can ensure and clearly see that inflation will change its tendency it doesn’t want to risk giving a different message,” said Juan David Ballen, analyst at brokerage Casa de Bolsa.

Still, one board member, leery of stunting economic growth, voted to hold the rate, arguing that the previous nine months of monetary tightening had achieved the goal of easing inflationary pressure and internal demand is “adjusting at a convenient rhythm”.

Finance Minister Mauricio Cardenas, who represents the government on the board, told journalists at the time that June’s hike would mark the end of the cycle.

But inflation has now gone even higher, possibly changing that likelihood.

An ongoing truckers’ strike has piled more pressure on food prices, leaving inflation at 8.6 percent in June. That is likely to continue up in July and beyond unless the government is able to find a quick solution, analysts have said.

“With June’s inflation there is room for another increase of 25 basis points in July and it makes one think that an interest rate of 8 percent before stopping is not crazy,” said Ballen.

The minutes indicated that no board member voted to increase the rate by a half point.

Economic growth of 2.5 percent in the first quarter was in line with estimates by the bank, with industrial output driving growth, the minutes showed. (Reporting by Helen Murphy, Nelson Bocanegra and Julia Symmes Cobb; Editing by Diane Craft)

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