MNI Colombia CB Review – Jan 26: 100bp Hike To Stop CPI Spiral

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Executive Summary 

• The Colombian central bank hiked its overnight lending rate by 100bp to 10.25% in January, as it began its tightening cycle with a larger-than-expected move. Most analysts had expected a 50bp hike, with a small minority forecasting a 75bp move and a similar number looking for a smaller 25bp increase.
• Once again, the decision was split 4-1-2, with one member voting for a hold and two members voting for a 50bp cut.
• The aggressive hike came on the back of the much-larger-than-expected minimum wage increase, which has resulted in a sharp rise in inflation expectations. In addition, the Board also noted the continuing strength of domestic demand and rising current account deficit.
• Analysts expect the Board to continue its aggressive hiking cycle ahead, with perhaps a 50bp move in March and 100-200bp of further tightening in total this year.