Colombia’s consumer price index (month-on-month) rose by 0.78% in March. The result was above the expected 0.69%.
The data shows inflation increased more than forecasts for the month. Only the month-on-month CPI figure and the expectation were provided.
Inflation Surprise And Policy Implications
The higher-than-expected March inflation reading of 0.78% signals that price pressures are not fading as quickly as we anticipated. This will likely force the Banco de la República to reconsider the pace of its monetary easing cycle. We should now expect the board to be more hawkish in its upcoming meetings.
With the annual inflation rate now running at 5.8%, still well above the 3% official target, this data supports keeping the policy rate elevated from its current 9.50%. Traders should look at positions that benefit from fewer rate cuts being priced into the curve for the second quarter. This is a significant shift from the market sentiment we saw building throughout 2025, which was geared towards a faster easing path.
This outlook makes the Colombian peso more attractive for carry trades, as the interest rate differential with other currencies remains wide. We should consider positioning for further strength in the COP against the US dollar, especially as the Federal Reserve has signaled a steady policy. A move towards the 3,800 level in the USD/COP pair is now more likely in the coming weeks.
We should remember the aggressive hiking cycle that peaked back in 2023 to combat a similar surge in prices. The central bank showed then it is willing to prioritize its inflation mandate over stimulating short-term growth. That history adds credibility to the view that the bank will act cautiously now, supporting a hawkish stance on rates.
