MNI Colombia CB Preview - Dec 2025: Hold Seen, Risk of Hike
Executive Summary
- BanRep is expected to leave its policy rate unchanged at 9.25% for a fifth consecutive meeting on Friday, in another split decision, although risks of a hike have increased significantly amid mounting concerns over the inflation outlook.
- Rising inflation expectations, strengthening domestic demand and increasing fiscal pressures have prompted the majority of the BanRep board to strike a more hawkish tone recently, with the market now pricing in over 150bp of rate hikes over the next year.
- For now, softer-than-expected CPI data this month give the Board some breathing space to wait for the outcome of 2026 minimum wage negotiations before year end.
BanRep’s December monetary policy meeting comes against a backdrop of mounting concerns over the inflation and fiscal outlook and increasing risks that the central bank will be forced to hike interest rates in the coming meetings. After remaining on hold in another split decision in October, Governor Villar said that the Board had discussed risks that would warrant rate hikes, although the base case at that time was still to keep rates unchanged for longer.
Since that meeting, several Board members have struck a notably more hawkish tone, flagging the risks that the central bank may have to hike rates in the coming meetings. Last month, BanRep co-director Mauricio Villamizar said that he sees increased likelihood of rate hikes, while more recently co-director Bibiana Taboada said that monetary policy may need to do more to moderate domestic demand growth. Their comments follow hawkish remarks from Governor Villar who also flagged the possibility of a rate hike amid the broad increase of inflation pressures. While he hopes this won’t happen, the Board may be forced in that direction, he said, given three key risks to the inflation outlook, including the "enormous" minimum wage increase, strength of domestic demand, and large fiscal deficit.
