Colombia’s consumer price index (CPI) rose 5.29% year on year in February.
The result was below the forecast of 5.49%.
With February’s inflation coming in below expectations at 5.29%, the door is now wide open for the Banco de la República to accelerate its interest rate cuts. We are now pricing in a higher probability of a 50-basis-point cut at the next meeting, instead of the previously anticipated 25 points. This shift in monetary policy expectations is the primary driver for our strategy in the coming weeks.
This outlook will likely put significant pressure on the Colombian Peso. Consequently, we should consider establishing positions that benefit from a weakening currency, such as buying call options on the USD/COP pair. Looking back at the easing cycle that began in late 2024, we saw the peso depreciate by over 7% in the following quarter, a pattern that could repeat.
For interest rate derivatives, the path is now clearer for lower rates ahead. We see an opportunity in receiving fixed rates on short-term interest rate swaps, betting that the central bank will follow through on this disinflationary signal. This is a direct play on the market repricing a more aggressive easing cycle from the central bank.
On the equity side, a faster pace of rate cuts should provide a tailwind for the local stock market. We believe bullish positions on the COLCAP index, potentially through call options on Colombian ETFs, are warranted. This view is bolstered by the weak 0.8% GDP growth figure we saw in the final quarter of 2025, which shows the economy needs stimulus.
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