Brazilianization of Colombia

COLOMBIA - In Brief 21 Dec 2025 by Andrés Escobar Arango

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Should the Central Bank start a new hiking phase for the intervention interest rate? Apparently, this is the prevailing view among many observers of monetary policy. Felipe Campos from Aliaza puts it succinctly: “The pressure is shifting to the Central Bank of Colombia, which is facing this situation, hoping that inflation will subside in the coming months, but at the same time grappling with two domestic threats: the minimum wage adjustment and the surprising resilience of domestic consumption, which is already affecting the current account. The scene is reminiscent of Brazil in 2023: an accelerated fiscal deterioration, declining inflation that gave the central bank a false sense of relief, and a delayed adjustment that ultimately turned into a debt crisis. The question is simple, Is the Central Bank of Colombia ready to receive the bond market watchdogs on their visit to Colombia?” His comments on Colombian ‘Brazilianization’ point to an episode in “the post-election crisis of 2022, when Colombian TES only found a floor when their yield aligned with that of similar-maturity Brazilian local bonds; since then, that curve has become, de facto, the correction benchmark for Colombia. With the new fiscal deterioration in 2025, TES bonds are retracing that same path and are once again seeking the "Brazil rate" as their equilibrium level.” While the arguments justifying a new phase of interest rate hikes seem strong, we believe that political considerations may prevail at the Central Bank's BOD. Already, the Dec. 19th decision to hold rates unchanged signals the prevailing ‘political’ equilibrium within the BOD. First, the hiking camp is still in formation, since not necess...