Governor Talk - Colombia: Fighting Inflation amid Tightening Financial Conditions


Location: Cedar Hall, HQ1-1-660


Leonardo Villar

Governor of the Central Bank of Colombia


Leonardo Villar is the current Governor of the Colombian central bank, Banco de la República, since January 2021. Previously, Villar was Executive Director at the International Monetary Fund (IMF) for Spain, Mexico, Colombia, Venezuela and four Central American countries--Guatemala, Costa Rica, Salvador and Honduras-- during two years. He was also Executive Director of FEDESARROLLO, a widely recognized Colombian think tank, between 2012 and 2018. He also acted as Chief economist and Vice-President of Economic Development and Public Policies at CAF – Development Bank of Latin America between 2009 and 2012. In the Colombian public sector, Villar was Member of the Board of Directors of the Colombian central bank for twelve years, as well as Technical Deputy-Minister at the Colombian Ministry of Finance and as Foreign Trade Advisor to the Colombian Government. Villar has had different responsibilities in the Colombian financial sector and has taught at several Colombian universities. He has published extensively in the areas of macroeconomics, social policy, foreign trade, and financial and foreign exchange policy. He holds a BA and MA in Economics from the Universidad de los Andes and a MSc from the London School of Economics, where he also pursued doctoral studies.


Ilan Goldfajn

Director Western Hemisphere Department, IMF


Ilan Goldfajn is the Director of the IMF’s Western Hemisphere Department. He was Governor of the Banco Central do Brasil (BCB) from May 2016 until February 2019. During his tenure at the BCB, he oversaw implementation of significant regulatory changes that opened the door to new players in the financial services industry, spurred innovation, and digitalization, and fostered the growth of fintech companies that has had a positive impact on Brazil’s financial sector. In 2017, he was elected Central Banker of the Year by The Banker magazine; and the year after, he was named Best Central Banker by Global Finance magazine.

Mr. Goldfajn’s experience in the private sector include positions as Chief Economist and Partner of Itaú Unibanco, founding Partner of Ciano Investimentos, and Partner and Economist at Gávea Investimentos—three leading financial institutions in Brazil. More recently he was the Chairman of Credit Suisse Brazil’s Advisory Board. He has also worked as a consultant to a number of global financial organizations, including the World Bank, the United Nations, and the IMF.

He has taught economics at various universities in Brazil and the United States and has published numerous articles and books. Mr. Goldfajn holds a PhD in Economics from the Massachusetts Institute of Technology (MIT), a master’s degree in Economics from the Pontifíca Universidade Católica and a bachelor’s degree in Economics from the Universidade Federal, both in Rio de Janeiro, Brazil.


Key Points:

  • Fighting inflation in a complex global context. Inflationary pressures in Colombia have been exacerbated by elevated food prices and higher demand due to better than expected growth after the pandemic. To contain inflation, monetary policy has been tightened rapidly in a context of strained global financial conditions. In this juncture, Banco de la República faces significant trade-offs and risks if inflation becomes more persistent than expected. Maintaining credibility becomes a difficult – but necessary – task even if the process of inflation converging to target takes longer.
  • The specter of inflation in Latin America. Banco de la República, as other Latin-American Central Banks, began its tightening cycle well in advance of other EMs. Two factors explain why they were ahead of the curve: the region has a history of high and costly inflationary periods, and the post-pandemic recovery was more rapid than expected.
  • The role of communication and toolkit in the Central Bank’s response. The central bank has clearly communicated the direction of their policy but has been cautions in avoiding the use of forward guidance. Colombia benefits from capital inflows and the central bank remains comfortable with the exchange rate acting as a first line of defense. Thus, capital flow measures and FX intervention do not seem reasonable now, although intervention could be considered in disorderly market conditions.
  • Coordination of Monetary and Fiscal policy. Fiscal policy has remained expansionary in Colombia, albeit the deficit has diminished slightly this year. The expectation going forward is that a tax reform contributes to reduce the deficit further, and that both policies will start to work in the same direction.


“[Colombia’s] rate of growth of GDP this year will be one of the highest of the world. That reflects an even higher number in terms of growth in aggregate demand, and that poses a huge challenge. This is good in the sense that we have good growth and per capita income is growing this year, but in order to make it sustainable and have a sustainable economy, we have to tighten monetary policy, and we have been doing so.” Leonardo Villar

“We know inflation, we know the cost of inflation. When we saw inflation going up, it was very important for us to avoid the situation in which we were 25 years ago, and that is a key reason for [tightening first].” Leonardo Villar

“[Fiscal and monetary policy] need to act together […]. The risk is that if you do not have both instruments working together, at some point you would need to do more, and then the risk is that deceleration that comes later could be less smooth than we would like.” Ilan Goldfajn

Contributor: Andrea Arévalo Arroyo