Higher Colombia Rates Won’t Tame Inflation, Central Banker Says

The Colombian Central Bank in Bogota. Photographer: Nathalia Angarita/Bloomberg Photo by Nathalia Angarita /Bloomberg

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(Bloomberg) — Colombia’s central bank should avoid additional interest rate hikes because tight monetary policy is no longer the correct tool to fight inflation, according to board member Cesar Giraldo.

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Raising rates to 11.25% hasn’t contained accelerating inflation because the current pressures are coming primarily from higher oil prices, supply chain disruptions and climate-related shocks that are beyond the reach of monetary policy, Giraldo argued in an interview at the central bank’s headquarters in Bogota.

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“The interest rate is already contractionary and inflation isn’t going down, it’s frozen,” said Giraldo, who has voted against the authority’s recent increases. “We have to resort to other instruments.”

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Giraldo’s position aligns him with President Gustavo Petro, who has intensified his pressure on the central bank since it delivered two consecutive full percentage point increases earlier this year. 

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The attacks from Petro, who appointed Giraldo to the board, pushed the monetary authority to the brink of crisis last month, when Finance Minister Germán Ávila threatened to boycott its rate-setting meeting. Policymakers unanimously voted to hold borrowing costs steady in a bid to calm the tensions.

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Financial markets have traditionally rejected heterodox policy ideas, which have sapped the credibility of central banks in Turkey and Brazil in the past. Already, Colombia’s decision to leave rates unchanged out of apparent political concerns have heightened fears among some investors about the monetary authority’s independence and credibility ahead of presidential elections, taking a toll on assets.

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Instead of relying solely on high rates, Giraldo said the policymakers could make use of open market operations, liquidity management and currency interventions while the government eases pressure with targeted subsidies for energy, lower tariffs and other measures.

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“I’m not questioning whether the central bank’s primary goal should be to combat inflation,” he said. “Nor am I questioning the central bank’s autonomy. What we are discussing are the instruments used to achieve the inflation target.”

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Annual inflation accelerated to 5.6% in March, the fastest since 2024. Inflation expectations soared after Petro increased the 2026 minimum wage by a record 23%.

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Giraldo acknowledged that private consumption has strengthened, supported by higher wages and remittances, although he said that spending growth hasn’t been fueled by excessive borrowing. Public spending, however, is contributing to demand pressures amid Colombia’s wide fiscal deficit.

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—With assistance from Robert Jameson.

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