Colombia Holds Interest Rate at 12.0%

Colombia's central bank kept its benchmark interest rate unchanged at 12.0% on July 31st. The bank noted that annual inflation rose to 6.1% in June, driven by higher food and regulated prices, while core inflation held steady at 6.0%. Inflation expectations for end-2026 and 2027 increased to 6.6% and 5.0%, respectively, with market-based expectations remaining above 6.0%. The bank also noted that economic activity strengthened in the second quarter, supported by robust services sector growth, and maintained its 2026 GDP growth forecast at 2.5%. The unemployment rate fell to 8.0% in June. A stronger Colombian peso has helped ease inflationary pressures, but risks from the Middle East conflict and a potential El Niño event could fuel inflation and weigh on growth. Future policy decisions will remain data dependent.

The Central Bank of Colombia raised its benchmark interest rate by 75 basis points to 12% at its June 30 meeting, tightening policy as inflationary pressures intensified. Policymakers noted that inflation continued to accelerate, with headline inflation reaching 5.8% in May and core inflation rising to 6.0%, moving further away from the bank’s 3% target. Inflation expectations also remained elevated across all horizons despite some easing in June. Economic activity showed resilience, with GDP growth accelerating to 2.2% year-on-year in the first quarter, above the 2.0% expansion in the previous quarter, while domestic demand continued to outpace output. The labor market also remained strong, with unemployment at a historically low 8.0% in May and wages rising significantly. The board said the rate hike aims to steer inflation back onto a downward path, while future policy decisions will depend on incoming data and evolving external risks.

The Central Bank of Colombia kept its policy rate unchanged at 11.25% at its April 30 meeting, defying expectations for a hike to the 11.75%–12.00% range. The decision reflects a broad assessment of key indicators. Inflation has eased in recent months but remains above target, while economic activity shows mixed signals, with some sectors recovering and others still under pressure. The bank aims to avoid overly tight financial conditions that could derail the fragile recovery, while staying committed to returning inflation to its 3% target. Looking ahead, policy will depend on the path of inflation and economic growth.