Colombia’s national unemployment rate was 10.9% in January. This compares with 8% in the earlier period referenced.
The surprise jump in the January jobless rate to 10.9% indicates the Colombian economy is cooling much faster than we anticipated. This weakness is a direct result of the aggressive interest rate hikes we saw the central bank implement throughout 2025 to control inflation. We should expect downward revisions to GDP growth forecasts for the first quarter of 2026.
Implications For Monetary Policy
This poor labor market data gives the Banco de la República a clear signal to accelerate monetary easing. While the market was pricing in a 50-basis-point cut at the March meeting, we should now position for a more aggressive 75-basis-point reduction. Interest rate swap markets will begin to reflect these new expectations, creating an opportunity for those who act quickly.
The Colombian Peso is now under significant pressure, as lower interest rates will reduce its appeal. We have already seen the USD/COP exchange rate push past the 4,100 level, a sharp move from the 3,950 range it held for most of last year. Look for further currency weakness by positioning through long USD/COP futures or call options.
Equity markets will likely suffer from this news, especially in the consumer discretionary and banking sectors. The COLCAP index is vulnerable to a sell-off as corporate earnings estimates are revised lower to reflect diminished consumer spending. We should consider buying put options on the Global X MSCI Colombia ETF (GXG) to hedge or speculate on a market downturn.
This economic surprise will increase implied volatility across Colombian assets. Looking back at similar economic shocks, like the initial data from the 2020 downturn, we saw volatility spike over 40%. We can use options strategies like long straddles on major index components like Ecopetrol or Bancolombia to profit from the large price swings that are likely to occur in the coming weeks.
