Colombia’s central bank caught most analysts off guard on Wednesday, Sept. 30, raising its policy rate by 25 basis points to 12.25%. The peso moved quickly. On Thursday, Oct. 1, it strengthened to as much as 3,269 per U.S. dollar in morning trading, then sat near 3,300 by late morning.
The Rate Decision
The Banco de la República raised its benchmark from 12% to 12.25%. Most analysts had expected the bank to hold. The board wasn’t unanimous: four of seven members backed the quarter-point increase, two voted to hold, and one wanted a half-point hike.
The day’s official reference rate came in at 3,312.84, down from 3,341.23 a day earlier. La República reported a morning range of 3,269 to 3,346 pesos per dollar, with about US$793 million traded. Its late-morning quote of 3,300.39 sat close to Portafolio’s 3,303.88. Both outlets linked the currency’s gains directly to the central bank’s move: higher local rates make peso deposits and bonds more attractive to foreign investors.
Governor Leonardo Villar said inflation remained “very far from the target.” Finance Minister Miguel Gómez cast his first rate vote as a board member.
The peso had weakened earlier in the month. Portafolio reported that the dollar rose 3.40% against the peso between Sept. 18 and 25, from 3,183 to 3,291. Over the longer run, La República put the reference rate at 3,908.12 on Sept. 29, 2025, and 3,349.63 a year later. A U.S. trip cost 14.3% less in pesos than a year earlier. The trade-offs cut both ways. People earning dollars get fewer pesos when the currency strengthens, while peso earners can pay less for imports and travel. The rate increase also makes borrowing more expensive.
Factories Hum, the Rest Cools
The private sector brought better news that same day. The Davivienda Manufacturing PMI rose to 54.6 in September from 54.3 in August, S&P Global reported on Oct. 1. That’s the strongest reading since October 2025 and the fifth consecutive monthly increase in output. A reading above 50 signals improvement from the prior month, while the survey’s long-run average since 2015 is about 50.9.
New orders grew at one of the fastest rates since the survey began in April 2011. Firms reported new customers and larger orders from existing clients. Many credited “reduced market uncertainty following the election result,” S&P Global wrote. President Abelardo de la Espriella took office on Aug. 7, 56 days before today. Manufacturers increased purchasing at the fastest rate on record, while finished-goods stocks fell as companies sold from warehouses. Business confidence reached its highest level since July 2019. Firms cited advertising, competitive pricing, diversification, partnerships and new product lines.
Employment rose for a sixth consecutive month, mostly through temporary hires, though hiring slowed to a four-month low. Input costs rose at their slowest pace in nine months. Factory selling prices rose more slowly than average, as some firms held back increases to win sales. Delivery times lengthened the most in three months. Firms blamed the earthquake, business closures and traffic jams. The magnitude 7.4 quake struck Chocó on Aug. 10.
Germán Cristancho, Davivienda’s chief of economic research, called the momentum “outstanding.” He described its resilience as “particularly interesting” because it contrasted with “the moderation currently observed in other areas of the economy,” citing retail sales and credit disbursements. The report cautioned that the PMI doesn’t mean the whole economy is booming. It also doesn’t guarantee factory momentum will last once higher rates feed through. Brazil’s manufacturing PMI, by comparison, fell to 44.8 in September.
The IMF Question
Separately, IMF deputy managing director Nigel Clarke held talks in Bogotá from Sept. 25 to 28. He met Vice President José Manuel Restrepo, Finance Minister Gómez and Villar. The sides agreed to no loan, credit line or programme. They opened technical working sessions on possible Fund support for a fiscal adjustment, and Clarke called the discussions “very productive and frank.” The government had asked the Fund to bring forward its routine annual review. Whether the contacts lead to a formal programme, and on what terms, remains unclear.
Why This Matters: Colombia’s central bank chose to defend price stability even though most analysts expected it to stand pat, and currency markets rewarded that decision within a day. But the bill comes due elsewhere. Borrowing is getting costlier just as retail sales and credit are already moderating, and the factory boom may not survive higher rates feeding through. Business confidence at a seven-year high suggests the private sector responds when political uncertainty clears. IMF talks over a possible fiscal adjustment show that the government’s balance sheet is part of the story too. Higher U.S. interest rates could also pull funds back toward the dollar, testing the peso’s gains.