Colombia Watch: Monetary Policy Decision: Larger hike than what was priced

Research evidence excerpt

Colombia Watch: Monetary Policy Decision: Larger hike than what was priced

tment plan – which we believe is likely to

happen – our view is BanRep will keep the policy rate unchanged at 12% for the rest of

2026 and start cutting rates in 2027 (25bp per quarter, March, June, September,

December). Fiscal consolidation is disinflationary. That is the point. We expect BanRep to

use fiscal adjustment as a forward-looking argument to cut next year.

Local Debt Market and & FX strategy

Ezequiel Aguirre

BofAS

ezequiel.aguirre2@bofa.com

For the Colombian peso, the backdrop remains constructive in the near term. Banrep’s

75bp to 12% reinforces Colombia’s already attractive carry profile. After the recent

market-friendly election outcome, COP no longer looks obviously expensive. Since the

statement focuses on rising headline and core inflation, tight labor markets, strong wage

growth, and excess demand, it suggests the central bank is in no hurry to cut. High

domestic interest rates for longer should keep the currency supported, particularly as the

positive election reaction reduces political risk premia.

For local rates, the picture is more balanced in the near term. Valuations remain cheap,

with Colombian yield spreads still high versus peers, and a credible fiscal consolidation

plan from De la Espriella’s administration should eventually allow further compression in

long-end yields. But near-term upside is limited by persistent inflation, strong demand,

wage pressures, and potential El Nino risks. We therefore see room for lower yields over

time, but expect compression to be gradual, with the market likely waiting for clearer

evidence of disinflation and credible fiscal measures before extending the post-election

rates rally.

2 Colombia Watch | 30 June 2026

CR