Colombia: Central Bank leaves rates unchanged in December
The Bank stands pat: At its meeting on 19 December, the Central Bank of Colombia (Banrep) decided to keep the monetary policy interest rate unchanged at 9.25%, matching market expectations. The board of directors was split: Four voted in favor of the hold, two supported a 50 basis point reduction and one backed a 25 basis point decrease.
Lower inflation and robust GDP growth drive decision: On one hand, a rate hike wasn’t warranted given lower inflation in November compared to October. That said, as inflation remained above the Central Bank’s 2.0–4.0% target, GDP growth beat expectations recently and expectations of future inflation increased, the Bank felt unable to cut.
The Bank will reconvene on 30 January.
Some panelists hike their forecasts: The Central Bank provided no explicit forward guidance on interest rates, stating that future rate decisions will be contingent on the evolution of inflation. Speaking at a subsequent press conference, Governor Villar warned that if inflation expectations continued to rise, the Bank would be forced back into tightening mode. That risk has likely increased, as a larger-than-anticipated minimum wage increase for 2026 recently prompted several panelists to mark up their inflation outlook and pencil in interest rate hikes for this year. However, our current Consensus is for interest rates to end 2026 close to their end-2025 level.
Panelist insight: Commenting on the outlook, Santiago Tellez, analyst at Goldman Sachs, stated:
“We no longer see Banrep remaining on hold at upcoming meetings, given the sheer magnitude of the wage surprise, our standing view that the minimum wage is the main upside risk to core disinflation […]. Instead, we now anticipate a hiking cycle to prevent end-2026 inflation expectations from rising further, anchor risk-premium and the FX, and further tighten the policy stance to counter heightened fiscal concerns and a potential short-term impulse to aggregate demand.”