According to Reuters article published on February 14, 2023, Colombia's central bank may need to consider additional hikes to its benchmark interest rate, depending on how inflation in Latin America's fourth-largest economy behaves, the International Monetary Fund (IMF) said on Tuesday, while not ruling out other internal risks.
The board of Colombia's central bank has raised borrowing costs by a total of 1,100 points to 12.75%, its highest rate since 1999, since launching into an upward monetary cycle in September 2021.
At the same time, inflation climbed to a high of 13.25% in the 12 months through January.
"Additional increases in the monetary policy rate could be necessary depending on the evolution of inflation, inflation expectations, and conditions of demand, among other factors," the IMF said in a statement on its annual revision of the Andean country.
Last week central bank board chief Leonardo Villar warned that inflation had yet to top out, which will likely lead to a more restrictive monetary policy than expected. The IMF echoed that sentiment, saying Colombia's central bank will have to maintain a restrictive monetary police until after 2023.
At the same time internal risks cannot be ruled out, the IMF said.
"In social aspects, Colombia has seen social problems and these tensions could return," Ceyda Oner, IMF assistant director and mission chief for Colombia, told Reuters.
The IMF called for special care to be taken to communicate and manage reforms being presented by President Gustavo Petro, the country's first leftist leader.
Petro on Monday presented a controversial health reform to Congress, the first in a series of initiatives he plans to push this year, as part of efforts to reduce inequality, exclusion and poverty in Colombia.
"Maintaining a continued track record of very strong policy implementation, including continuing to comply with the fiscal rule and the inflation-targeting framework, would help strengthen Colombia's resilience and ability to respond to external and internal shocks," Oner added.
