Colombia Must Recalibrate Monetary Policy After August Inflation Spike, Board Member Says

Colombia's central bank will need to reassess how restrictive its monetary policy should be after annual inflation climbed to 6.24% in August, the highest in two years and above analyst forecasts, board member Olga Lucia Acosta said.

"July was a moment of hope, it had a slight moderation, we were waiting for the result of August and indeed inflation continued to rise," Acosta said in an interview on Tuesday afternoon.

The bank raised its benchmark interest rate in January, March and June before holding it at 12% at its July meeting. It next meets on September 30. Markets expect the long-term 3% target will not be met in 2026 or 2027.

"What the data is showing us is that inflation has risen, requiring us to recalibrate and examine how tight monetary policy needs to be," Acosta said. "The data, therefore, is showing us that there is still action to be taken."

Acosta said the 23% increase in the minimum wage this year by the now-departed leftist government had a significant impact on inflation through price indexation. But she described fiscal problems as the main driver of high inflation, as higher wages and government spending have pushed up domestic demand.

"It's important that the fiscal adjustment helps us to have inflation expectations that gradually approach the bank's target," she said.

The recently inaugurated government of right-wing President Abelardo De La Espriella has projected deficits of 7.2% of GDP for 2026 and 9.4% of GDP for 2027, and has pledged austerity measures.

Acosta said Colombia's economy is resilient but warned about the growing trade deficit resulting from the appreciation of the Colombian peso against the dollar and slower export growth. Business leaders have asked the central bank to intervene to contain the peso, which has appreciated by 21% in the last 12 months to its highest level in almost eight years, but Acosta said the institution can do nothing to rein in the currency.