Colombia MPC Minutes: Tightening Bias Likely to Be Maintained at Next Meeting but Potential Downshift

Research evidence excerpt

Colombia MPC Minutes: Tightening Bias Likely to Be Maintained at Next Meeting but Potential Downshift

Goldman Sachs

horizons, consistent with a meaningful deterioration in central bank credibility.

Domestic demand, propelled by expansionary fiscal policy, continues to grow faster

than GDP, and the staff’s official inflation forecasts are likely to be raised—

particularly for 2026—even absent El Nino, whose uncertain duration and intensity

add a further layer of risk. The Directors welcomed the recent risk premium

compression and currency appreciation as a partial offset to other inflation risks,

while acknowledging that a stronger peso has facilitated robust import growth.

2. The four Directors characterized activity as “slightly” firmer than anticipated against

a dynamic labor market that reduces monetary policy tradeoffs, and concluded that

these conditions justified “a significant increase in the policy rate leaving the policy

stance in a better position to face the current balance of risks.” They further

emphasized the importance of a structural fiscal adjustment, which would both

assist the return of inflation to target and restore the investment capacity displaced

by fiscal imbalances.

3. The two Directors who voted to cut argued inflation reflects supply shocks and

backward-looking indexation—climate-driven food prices, rents, and geopolitically

elevated oil and transport costs—rather than demand, and thus lies beyond the

reach of rate hikes. They warn that further tightening would widen the rate

differential, attract speculative and carry-trade flows, over-appreciate the peso, and

damage exporters and domestic manufacturing already pressured by Chinese

imports, while first-quarter growth of 2.2% signals an economy losing momentum.

4.