Colombia Unexpectedly Holds Rates Despite Price Pressures

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(Bloomberg) — Lea la nota en español

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Colombia’s central bank unexpectedly held interest rates unchanged in the final monetary policy meeting under President Gustavo Petro’s administration despite mounting inflationary pressures.

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The seven-member board kept the benchmark interest rate at 12% on Friday, Governor Leonardo Villar told reporters after the meeting. Just four of 27 economists surveyed by Bloomberg had forecast the move, while the rest had expected rate increases ranging from 25 basis points to as much as 75bps. 

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Four members voted to hold rates steady, while three voted for a half-point increase, Villar told reporters in Bogotá.

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Villar also announced that the central bank will launch an initiative to accumulate as much as $4 billion in international reserves. The auction will be Aug. 3, the options can be exercised from Aug. 4

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The rate decision came despite inflation remaining above 6%, with policymakers facing the prospect of missing the bank’s target of 3%, plus or minus one percentage point, for both this year and next. The Colombian peso has strengthened more than 20% against the dollar in 2026, helping ease imported inflation while weighing on exporters of coffee, bananas, flowers and other commodities.

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Inflation is currently reflecting the combined effects of the government’s expansionary fiscal policy, the 23% minimum-wage increase and temporary food and energy shocks, Andres Abadia, Latin America economist at Pantheon Macroeconomics, wrote in a research note to investors before the meeting and had correctly forecast the decision. 

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The decision can be read as a last victory for Petro who had a turbulent relationship with the central bank. The leftist repeatedly attacked policymakers for keeping borrowing costs elevated despite accelerating inflation, while Finance Minister Germán Ávila, who attended his final policy meeting, echoed those criticisms and at one point threatened to boycott rate decisions.

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Governor Villar and a majority of board members have consistently argued that inflation expectations remain unanchored and that monetary policy should remain restrictive until price pressures are on a downward path.

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Before the meeting, economists surveyed by the central bank expected the policy rate to peak at 12.5% before easing begins in March 2027.

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Investors have poured money into Colombian assets, attracted by high interest rates that support carry-trade strategies and by expectations that President-elect Abelardo de la Espriella will implement fiscal adjustments. Colombia’s independent fiscal committee estimates the budget deficit will exceed 7% of gross domestic product this year.

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While Petro argued that high government bond yields reflected the central bank’s elevated policy rate, policymakers have consistently maintained that Colombia’s fragile fiscal outlook is the primary driver of sovereign borrowing costs.

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Economist Miguel Gómez Martínez will become Colombia’s next finance minister and will join the central bank’s board as the government’s representative. Policymakers are scheduled to meet again at the end of September.

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—With assistance from Rafael Gayol and Valentine Hilaire.

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(Updates to add vote count, plan to accumulate reserves from third paragraph)

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