An unexpected pause in Colombia’s interest-rate hikes is threatening to upend local markets, with skepticism over the central bank’s credibility building weeks before a pivotal presidential election.

Strategists are saying the so-called steepener trade is likely to gain traction following the decision, with longer-dated interest-rate swaps trailing short-dated contracts. The peso may also weaken when it reopens Monday as investors scale back expectations for further rate increases in the near term.