Banco de la República raised Colombia’s policy rate by 25 basis points on Wednesday, lifting it from 12% to 12.25% and catching markets flat-footed. The move came on the same day the country reported August unemployment of 9.4%, up from 8.6% a year earlier and well above the 8.1% forecast.
The central bank kept fighting inflation despite worsening job figures.
A Divided Board
The seven-member board, chaired by Governor Leonardo Villar, voted 4-2-1. Four directors supported the quarter-point increase. Two favored holding the rate at 12%. One called for a 50-basis-point hike. The rate had stayed at 12% since July 1, after the board raised it by 75 basis points in late June. Cumulative tightening for the year now stands at 300 basis points.
No one had signaled the move. The August Encuesta de Opinión Financiera, a Fedesarrollo and stock-exchange survey that markets use as a reference, showed analysts expected the rate to remain at 12% through year-end. The board paused in July to see whether its earlier increases were working, but gave no public hint before the September 30 meeting.
The published reasoning focused on prices. Annual inflation reached 6.2% in August, or 6.24% in DANE’s unrounded figure, up from 6.1% in June. That’s above the bank’s 2-to-4-percent target range. Services inflation hit 7.2%, and inflation expectations remained above target at every horizon. The full reasoning will appear in minutes scheduled for Monday, October 5.
Finance Minister Miguel Gómez, facing his first rate decision, said the board concluded “a moderate 25-basis-point increase in the interest rate was the best policy.”
The Fiscal Backdrop
The hike came during a tense stretch for public finances. The government began early talks with the IMF, opened by the president on Sunday. It has requested a technical mission and is discussing possible financing. Meanwhile, Bogotá’s new tax reform, worth about US$324 million a year, is moving into implementation. The fiscal-rule committee, Carf, projects a 2026 deficit of 7.8% of GDP. The government projects 7.2%.
The peso, meanwhile, has firmed. The Superfinanciera certified the official TRM at 3,312.84 pesos per dollar for Thursday, October 1, down from 3,341.23 on Wednesday and 3,349.63 on Tuesday. One market report put the peso up 0.68% at 3,307.50 per dollar, while the COLCAP stock index fell 0.38% to 2,549 points. A stronger peso means dollar earners receive fewer pesos per transfer. People earning pesos who have dollar obligations get some relief. At the TRM, US$1,000 converts to COP 3,312,840, roughly COP 37,000 less than at Tuesday’s rate.
What Borrowers and Savers Face
The higher policy rate can feed into new peso loans through the DTF and IBR indexes, while variable-rate credit responds later. Term deposits and savings products tend to move upward with the policy rate. Reports advised borrowers to recheck loan offers and savers to compare rates before renewing deposits.
Other costs keep piling up. A regional market report cited 2,841 road blockades over the past four years, costing about 12.7 trillion pesos, or about US$3.8 billion. The next rate meeting is October 30, 2026.
Why This Matters:
Colombia’s central bank acted on inflation as unemployment climbed, a choice institutions with real independence have to make. The vote split shows the board itself disagrees about the pace. Borrowing costs now overlap with a wider deficit than the government projected, a new tax reform and IMF talks. From a fiscal and market perspective, that combination puts pressure on credibility. The October 5 minutes should show how directors weighed August inflation against the peso’s recent firmness. Investors, lenders and households will look there first, then to the October 30 meeting, for signs of where rates and public finances go next.