Here Is Why Colombia Does Not Need To Hike Rates

ING argues that Colombia’s central bank, BanRep, should maintain current interest rates rather than hike further. The combination of a 3.8% built-in interest rate buffer and currency strength provides sufficient monetary restriction.

Key Takeaways

• 1.The Colombian central bank (BanRep) should hold interest rates rather than hike, as significant policy tightening is already embedded.
• 2.An interest rate buffer of 3.8% has been established, complemented by an additional 4% in implicit tightening via peso strength.

Table of Contents

• Here’s why Colombia does not need to hike rates
• Here are some of the pushes and pulls BanRep is dealing with
• Inflation expectations and Real Yields have been on the decline
• Does BanRep need to hike further or can it hold pat?
• The interest rate buffer calculations
• Enough of a rate buffer built in, especially given FX angle
• BanRep could still hike, but we call for a hold

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