Here’s why Colombia does not need to hike rates | opinions

Before Banco de la República (BanRep) embarked on its latest rate-hiking spree, we sent out this note. It highlights key inputs such as the 24% minimum-wage announcement, a series of 2025 downgrades, a lurch into the BB credit-rating zone, and a heavy re-funding requirement (the 5.5% area for the fiscal deficit).

Fast-forward through 2026, the congressional elections have come and gone, resulting in policy stasis. This is not great. S&P analysts have circled back with an additional rating downgrade to BB-, the lowest among the top agencies, citing ongoing, unresolved fiscal pressures. Meanwhile, printed inflation has risen to 5.8%, well above the upper tolerance band range around 4%. Not great, hence the ongoing pressure for hikes.

Pitched against that, the 3yr breakeven inflation rate, which approached 8% in February, is back down to 6.1%. It’s still too high, of course, but at least showing a tendency to head in an auspicious direction. That’s the inflation piece. The fiscal deficit piece is better captured by the real yield, which has been falling. On the 3yr maturity, it’s down to 6.2%. While that’s still high, it peaked at 7.6% in May. We’re not in a good place, but there’s been some containment of the problem.