Colombia raises rates again as inflation pressure outweighs slowing activity
A divided central-bank board lifts the policy rate to 12.25%, exposing disagreement over how much tightening the economy needs.
Colombia’s central bank raised its benchmark interest rate to 12.25% on September 30, choosing another increase despite signs that parts of the economy were losing momentum.
The quarter-percentage-point move was approved by four board members. Two wanted to leave the rate unchanged, while one favored a larger half-point increase, the bank’s official statement showed. The new rate took effect October 1.
Reuters reported that the decision surprised much of the market and came amid concern about inflation, including possible pressure associated with El Niño. The Colombian peso strengthened that day, although it still ended September weaker.
The central bank’s release described a mixed growth picture. Seasonally adjusted GDP was 3.4% higher than a year earlier in the second quarter, but its monthly activity indicator showed annual growth of only 1.1% in July. Manufacturing declined while retail sales grew, illustrating that households and industries were not moving in lockstep.
That divergence explains the importance of the divided vote. The majority chose tighter monetary conditions; other members disagreed either with the need for an increase or with its size.
Higher policy rates are intended to restrain inflationary pressure, but their effects take time and can also weigh on credit-sensitive activity. The announcement fixed the immediate policy setting without establishing when inflation would return to target or whether the next meeting would bring another change.
The inflation concern predates the September meeting. In its July monetary-policy report, released August 4, the bank's technical staff said price growth had moved farther from its 3% target during the second quarter. It identified higher labor costs, strong household and public spending, and food-price pressure among the drivers.
Staff projected further price increases during the remainder of 2026 before gradual moderation from 2027. Those were forecasts, subject to substantial uncertainty, rather than observed outcomes. The report identified weather, international conflict, fiscal policy and regulated prices such as fuel and energy as possible sources of change.
That earlier analysis helps explain why weaker activity in some sectors did not automatically produce a rate cut. The bank was also looking ahead to costs and demand that could keep inflation elevated. Its stated mandate combines preserving purchasing power with seeking sustainable output and employment under a flexible exchange-rate regime.
The September vote showed disagreement over the response, not a single unanimous view of the economy. Four members chose a quarter-point increase, while three preferred either no increase or a larger one. The new rate became effective October 1; the decision did not commit the board to a fixed sequence of future moves.
