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Colombia's central bank raises interest rate to 12.25%

Colombia's central bank raises interest rate to 12.25%

Money Moves

Unexpected hike targets inflation running at 6.2%, more than double the bank's 3% goal

3 days ago: BanRep hikes rate to 12.25%

Overview

Updated 1 hour ago

Colombia's central bank raised its benchmark interest rate by a quarter point to 12.25% on September 30, a move that surprised forecasters who expected a hold. The 4-2-1 vote came in the new government of President Abelardo De La Espriella and lifted the rate to its highest level since March 2024.

The bank is fighting inflation that reached 6.2% in August, more than double its 3% target. Board members pointed to food and regulated prices, the approaching El Niño weather pattern, and a recent earthquake as near-term pressures, with the finance minister calling inflation a tax that falls hardest on the poorest Colombians.

Why it matters

The hike pushes borrowing costs up across Colombia, from mortgages to business loans, just as the new government weighs how to stabilize public finances.

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Key Indicators

12.25%
Benchmark policy rate
Raised 25 basis points from 12% on September 30, its highest level since March 2024.
6.2%
Annual inflation, August 2026
More than double the central bank's 3% target, with food at 6.1% and regulated prices at 6.8%.
3%
Inflation target
The bank's long-run goal, which current price growth exceeds by more than two times.
4–2–1
Board vote split
Four directors backed the hike, two wanted to hold, and one sought a half-point increase.

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People Involved

Organizations Involved

Timeline

June 2026 September 2026

2 events Latest: 3 days ago
  1. BanRep hikes rate to 12.25%

    Latest Policy

    In a 4-2-1 vote, the board raised the benchmark rate by 25 basis points, surprising markets that expected a hold. Inflation had climbed to 6.2%.

  2. BanRep holds rate at 12%

    Policy

    At its end-of-June meeting, the bank's board kept the benchmark rate at 12%, where it had settled after the easing cycle.

Scenarios

1

BanRep holds at 12.25%, cuts in late 2027

Likely Resolves by Q3 2027

Discussed by: BBVA Research

BBVA's base case. It expects incoming data to keep the board steady for several meetings, with the next move a rate cut around September 2027, as demand softens and inflation decelerates toward target.

2

El Niño and weak fiscal adjustment push BanRep to hike again

Possible Resolves by Q2 2027

Discussed by: BBVA Research

If El Niño price shocks become embedded in inflation expectations and the expected fiscal adjustment fails to materialize, the economy may need a higher real rate. That would mean additional hikes or a delayed start to easing.

3

Peso strength and softer demand bring earlier cuts

Possible Resolves by Q2 2027

Discussed by: BanRep board minutes; analysts cited in coverage

BanRep notes the peso's appreciation has yet to show fully in consumer prices. If the expected slowdown arrives, stronger exchange-rate pass-through could speed disinflation and bring the first cut before mid-2027.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

2015-2016

El Niño food inflation in Colombia (2015-2016)

A strong El Niño disrupted food supplies across Colombia, pushing annual inflation toward 9% by 2016, far above the central bank's target at the time.

Then

BanRep tightened policy as food prices surged, and inflation receded once the weather shock faded.

Now

The episode became the standard case of weather-driven inflation: painful in the moment but reversible if expectations stay anchored.

Why this matters now

Today's board explicitly worries El Niño will do the same, lifting food and regulated prices, and whether those rises stay temporary or feed into expectations.

2022-2023

Colombia's post-pandemic inflation surge (2022-2023)

Colombian inflation ran above 13% in 2022-2023 as post-pandemic demand and a weak peso pushed up prices. BanRep raised its policy rate above 13% and held it there for over a year.

Then

Inflation eventually fell back toward single digits, and the bank began a long easing cycle through 2024-2026, cutting from above 13% down to 12%.

Now

The episode left inflation expectations fragile, which the bank cites as a reason to respond firmly to renewed price pressure.

Why this matters now

It explains why BanRep is hiking now after easing: memories of the 2022-2023 surge make the board wary of letting temporary shocks become embedded.

Sources

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