Colombia’s central bank raised its benchmark interest rate by 100 basis points to 10.25% on Friday, marking the first rate increase in almost three years and a larger step than most market observers had anticipated. Policymakers pointed to mounting inflationary pressures, a sharp uptick in inflation expectations and growing fiscal and external risks as reasons for the decision.
The board vote was divided. Of the seven members, four supported the full 100-basis-point rise, two voted for a 50-basis-point cut, and one favored keeping the rate unchanged, according to the central bank’s statement.
A poll found that 15 of 26 analysts had forecast a 50-basis-point increase taking the rate to 9.75%, while only one analyst had expected a 100-basis-point move. The central bank highlighted December headline inflation of 5.1%, which it described as slightly below end-2024 levels, and noted that core inflation accelerated to 5.02% in December from 4.85% in November. The institution’s long-term inflation target is 3%, plus or minus one percentage point.
Despite the headline figure, the bank said inflation expectations climbed markedly in January. In a central bank poll of analysts, the median projection put inflation at 6.4% at the end of 2026 and 4.8% at the end of 2027.
Officials also pointed to a widening current account deficit, which the bank estimated reached 2.4% of gross domestic product in 2025, up from 1.6% in 2024. The central bank attributed the deterioration mainly to faster import growth driven by robust domestic demand while exports expanded only modestly.
The policy statement additionally flagged elevated external uncertainty. The bank listed several external risks, including escalating trade conflicts, migration measures in the United States, geopolitical tensions and market perceptions of Colombia’s sovereign risk.
Finance Minister German Avila, who participates on the board, publicly rejected the decision at a Friday press conference. Avila said that inflation has declined and that economic growth was on a sustainable path. President Gustavo Petro has repeatedly advocated for lower interest rates.
Implications and context
- The size of the increase and the split vote underline tensions within policy ranks over how to respond to rising inflation and risk indicators.
- Projections showing elevated inflation into 2026 and 2027 suggest policymakers view disinflation as a gradual process rather than immediate.
- The central bank’s emphasis on a wider current account shortfall and external uncertainty points to concerns about balance-of-payments pressures and sovereign market sentiment.