• Colombia’s central bank may need to consider more increases to its benchmark interest rate.
• Leonardo Villar issued a warning last week that the inflation rate was still rising.
• The IMF urged extra caution to be used in managing.

Depending on how inflation behaves in Latin America’s fourth-largest economy, Colombia’s central bank may need to consider more increases to its benchmark interest rate, the International Monetary Fund (IMF) warned on Tuesday, without completely ruling out other internal risks.

Since beginning an upward monetary cycle in September 2021, the board of Colombia’s central bank has increased borrowing costs by a total of 1,100 points to 12.75%, its highest rate since 1999.

In the same period, inflation increased to a peak of 13.25% in the year that ended in 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.

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Leonardo Villar, the chairman of the central bank board, issued a warning last week that the inflation rate was still rising and would likely result in a more restrictive monetary policy than anticipated. The IMF agreed, stating that until after 2023, Colombia’s central bank must maintain a stringent monetary policy.

Internal risks cannot be completely eliminated at the same time, the IMF stated.

“In social aspects, Colombia has seen social problems and these tensions could return,” Ceyda Oner, IMF assistant director, and mission chief for Colombia told the media.

The IMF urged extra caution to be used in managing and communicating the reforms that President Gustavo Petro, the nation’s first Marxist leader, was presenting.

In an effort to lessen inequality, isolation, and poverty in Colombia, Petro on Monday proposed a contentious health reform to Congress as the first of several reforms he hopes to promote this year.

“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.

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