Colombia\u2019s consumer price index rose 1.08% month on month in February. This was below the forecast of 1.27%.<\/p>\n
The outturn was 0.19 percentage points lower than expected. The data compares the change in consumer prices in February with the previous month.<\/p>\n
The lower-than-expected inflation figure for February strengthens our view that the central bank will move to cut its benchmark interest rate at its next meeting. This marks the fifth consecutive month that inflation has surprised to the downside, a clear trend that policy makers can no longer ignore. The market was pricing in a 25 basis point cut, but this data now brings a 50 basis point reduction into play.<\/p>\n
For interest rate traders, we see value in receiving fixed on IBR swaps, particularly in the 1-year to 2-year part of the curve. Following the data release, the 2-year swap rate has already fallen 18 basis points to 8.32%, and we expect it to trend lower towards the 8.00% level seen in late 2025. This move anticipates the central bank easing policy more aggressively than previously thought.<\/p>\n
On the currency front, this development is bearish for the Colombian Peso. Lower domestic interest rates reduce the appeal of holding the currency, suggesting a move higher for the USD\/COP pair. We should consider buying USD\/COP call options with a 4,100 strike price, as the pair looks set to break out of the tight range it has held since January 2026.<\/p>\n
This environment is supportive for Colombian equities, as lower borrowing costs will help corporate earnings.<\/p>\n
We anticipate the MSCI Colcap index, which has been stagnant around 1,275 points, will find upward momentum from this news. Call options on the index or futures contracts are viable ways to position for a retest of the 1,350 highs from the fourth quarter of 2025.<\/p>\n
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