Colombia's central bank should tighten early, board co-director says

what happened

Colombia's central bank needs to start tightening monetary policy earlier to return inflation to its target in 2028, co-director Mauricio Villamizar told Reuters. He said many inflation risks will likely appear in 2027, and raising rates after they emerge would be more costly. He acknowledged the bank could have acted more forcefully in recent months.

The benchmark rate is held at 12.25%. In late October, four of seven board members voted to hold, while three backed a 25 basis point increase. Inflation stood at 6.30% at the end of October, more than double the bank's 3% long-term target. Villamizar pointed to El Niño effects, fiscal strains and external factors, including geopolitical risks, commodities and oil, as upside risks. He warned that a 2027 minimum wage rise above 9%, or Congress rejecting or trimming the fiscal reform, would call for a large new policy response.

why it matters

For markets, the message is that the central bank is prepared to keep a firm stance, so the local currency and domestic bonds remain sensitive to its future decisions. Villamizar also noted that the bank has raised rates by 300 basis points in total: 100 bp in January and March, 75 bp in June and 25 bp in September.

market impact

Peso and local debt: signal of possible further tightening by Colombia's central bank

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