Colombia: Central Bank resumes tightening cycle
Bank hikes more than expected: At its meeting on 30 June, the Central Bank (Banrep) decided to resume its tightening cycle, raising its policy interest rate by 75 basis points to 12.00% starting from 1 July. The hike was larger than market analysts had expected, and rates currently sit at the highest level in over two years.
High inflation triggers rate hike: The decision was based on inflation remaining above the Central Bank’s 3.0% inflation target in recent months and persistently elevated inflation expectations. Furthermore, low unemployment and robust wage growth provided additional justification for the move.
Rate hikes to continue this year: The Central Bank did not provide any forward guidance. Nevertheless, the vast majority of our panelists expect additional rate hikes of between 25 and 100 basis points over the coming quarters, as inflation remains elevated. As a result, the policy rate is forecast to end 2026 at its highest level since 2023.
The Bank will reconvene on 31 July.
Panelist insight: Commenting on the outlook, BBVA’s Alejandro Reyes González stated:
“Looking ahead, additional inflationary pressures are likely to emerge over the coming months. Some are expected to be temporary, such as the potential effects of an El Niño event, while others appear more structural, including demand-side pressures supported by the continued strength of the labor market. […] Accordingly, we believe that BanRep is likely to continue the current tightening cycle with at least one additional 25-basis-point rate increase over the coming months.”