At its September meeting, Colombia’s central bank unexpectedly raised its benchmark interest rate by 25 basis points to 12.25%, the highest level since early 2024. The move reflects the bank’s effort to steer inflation back toward its target after several years of above-target price growth. Four board members voted for the increase, two favored keeping the rate unchanged, and one supported a larger hike of 50 basis points.
Annual inflation accelerated to 6.24% in August and is projected to remain above the upper bound of the bank’s 2%–4% target range throughout 2026 and 2027. The board stated that the decision keeps monetary policy in restrictive territory, in line with a gradual disinflation path into 2027.
At the same time, recent indicators have signaled softer economic activity. Urban unemployment rose to 9.1% in August, while economic activity, manufacturing output, and retail sales all undershot expectations in July. The rate decision also comes against a backdrop of mounting concern over Colombia’s fiscal outlook, as the government contends with a widening budget deficit and seeks to open discussions with the IMF.