Colombia Central Banker Favors More Interest Rate Hikes After Shock Pause

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessColombia Central Banker Favors More Interest Rate Hikes After Shock PauseInvestors shouldn’t interpret the Colombian central bank’s decision to pause interest-rate hikes last month as a sign of dovishness, a top policymaker warned.Author of the article:Oscar Medina and Nicolle Yapur You can save this article by registering for free here. Or sign-in if you have an account.Mauricio Villamizar, co-director of the Central Bank of Colombia Photo by Ting Shen /Photographer: Ting Shen/Bloomber(Bloomberg) — Investors shouldn’t interpret the Colombian central bank’s decision to pause interest-rate hikes last month as a sign of dovishness, a top policymaker warned.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountRaising rates more now would be less costly than waiting and making gradual adjustments later, said Mauricio Villamizar, a co-director of Banco de la República. He said the current policy stance, while restrictive, isn’t enough to slow inflation below 4% — the ceiling of the target range — by the end of 2027.Policymakers unexpectedly left borrowing costs unchanged at 12% on July 31 in a 4-3 split vote, with Villamizar supporting a 50-basis-point increase. The decision reinforced the Colombian central bank’s reputation as one of the world’s least predictable monetary authorities.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again“There is concern that the pause in interest-rate increases could be interpreted by the market as a sign of less commitment to bringing inflation toward the target,” Villamizar said in a written response to questions. “That would be a misinterpretation which I do not share.”Inflation in the Andean nation is forecast to end 2026 near 7% and remain above 4% in 2027, putting the central bank at risk of continuing to miss its target of 3%, which has a tolerance range of plus or minus one percentage point. Colombian policymakers are contending with a range of domestic and global price pressures, including the fallout from the Iran war and a recent minimum-wage increase. A strong El Nino weather pattern, seen as highly likely, stands to push food and energy costs even higher.Colombia can’t sustain a combination of expansionary fiscal policy, wage hikes that exceed productivity growth, slow inflation and low interest rates, said Villamizar, who holds a doctorate from Georgetown University.“Since the first two have not eased over the past two years, and inflation remains far from the target, monetary policy must assume a greater share of the adjustment,” he said. “Rates will have to remain elevated for longer.”Last month’s rate decision can be read as a final victory for outgoing President Gustavo Petro, who has repeatedly attacked policymakers for keeping borrowing costs high.Two-year interest-rate swaps — which are among the market indicators most sensitive to monetary policy expectations — partially reversed Monday’s slump as investors continue to bet that the tightening cycle isn’t over.The same day as the last rate decision, the central bank also announced a plan to accumulate as much as $4 billion in international reserves through put options, a move some investors interpreted as a sign that policymakers consider the peso to be too strong.The peso has appreciated almost 20% against the dollar year-to-date, the biggest gain among global currencies, on the back of carry trade appeal and political optimism. It rose for a third session on Thursday, putting it on track to erase losses incurred immediately following the reserve plan announcement. This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.While the appreciation has hurt some of Colombia’s industries and companies, those vulnerabilities should be addressed through targeted and temporary fiscal measures, Villamizar said. Adjusting monetary or exchange-rate policy for the entire economy instead could delay inflation’s return to target, he said.The peso’s recent strength appears to have been driven more by the change in government and expectations of greater fiscal discipline than by carry-trade strategies, he said. President-elect Abelardo de la Espriella, who is pledging to cut spending and replenish public coffers, starts a four-year term on Friday.The central bank’s plan followed a deterioration in several reserve-adequacy indicators, particularly after Colombia lost access to the International Monetary Fund’s Flexible Credit Line, Villamizar said. Investors shouldn’t interpret the program as an attempt to weaken the currency, he said.“Banco de la República neither seeks nor defends a particular exchange-rate level,” he said. “Its primary objective remains preserving price stability and ensuring the timely convergence of inflation toward the target.”Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.