Colombia’s minimum wage hike of 23.2% for 2026 surpassed estimates, which ranged between 11% and 16%. This is likely to force BanRep to hike rates in 2026, while also adding incremental fiscal pressure. The market is currently pricing 200bp of hikes through mid-2027, but the upside surprise to the wage adjustment could add an additional 75-125bp of tightening, while also front-loading those hikes into 2026. The COP could also face pressure, as the initial rise in rates is likely to be driven primarily by higher breakeven inflation, limiting support for the currency – especially as recent technical support from higher financial-sector USD cash balances reverses, pushing the cross-currency basis lower.
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