Colombia’s central bank’s first meeting of the year sent a clear signal about the direction of monetary policy in Colombia. The board of directors decided to raise the benchmark interest rate by one percentage point, taking it to 10.25%, after eight consecutive months in which the indicator remained stable at 9.25%.
The decision surprised part of the market, which, despite expecting an increase, had bet on a smaller rise. This announcement confirms the central bank’s concern about recent inflation dynamics and future expectations, and comes shortly after the U.S. Fed’s decision to keep its rates unchanged.
On the other hand, the adjustment comes in a context of relative strength in economic activity, although external risks and macroeconomic imbalances remain present. The central bank considers that the measure seeks to reinforce the process of inflation converging toward the target and to send a preventive signal in the face of deteriorating inflation expectations, amid an international scenario marked by trade tensions and financial volatility.
Colombia’s central bank announces steep interest rate hike
The decision to raise the interest rate was adopted by majority vote within the board of directors. Four members voted in favor of the increase, while two supported a moderate reduction, and one argued for keeping it unchanged. The result reflects an internal debate over the balance between price control and supporting economic activity, although the more cautious view regarding inflation ultimately prevailed.
During the previous months, the central bank had opted to keep the cost of money stable, partly because inflation was showing gradual signs of moderation. However, the most recent information changed the outlook. Headline inflation stood at 5.1% in December, slightly below the level observed at the end of the previous year, but core inflation, which excludes food and regulated prices, showed a slight uptick.
Beyond the specific figure, what generated the greatest concern was the jump in inflation expectations. Analysts’ projections for the end of 2026 and 2027 increased significantly compared with previous readings, while estimates implied in debt markets also exceeded 6% at the two-year horizon.
This shift suggests a risk of expectations becoming unanchored, one of the factors central banks seek to avoid to maintain the credibility of monetary policy.
En su reunión de enero la #JuntaBanRep decidió por mayoría subir la tasa de interés de política monetaria a 10,25%.
Cuatro directores votaron a favor de esta decisión, dos por una reducción de 50 pbs. y uno por mantenerla inalterada.
Más información 👉 https://t.co/xeDu55QoD4 pic.twitter.com/w7dROviwUK
— Banco República 🇨🇴 (@BancoRepublica) January 30, 2026
Internal and external pressures on the Colombian economy
The central bank also assessed the recent performance of the Colombian economy. Indicators from the last quarter of 2025 point to sustained growth driven by dynamic domestic demand, especially from private consumption and public spending. Under that scenario, the technical team estimates that the economy likely grew by around 2.9% in 2025, a figure that reflects resilience despite the complex global context.
However, that dynamism has macroeconomic costs. The current account deficit continued to widen and likely reached around 2.4% of GDP in 2025, mainly driven by the sharp increase in imports compared with more moderate export growth.
In addition, the shift in the export structure, with a smaller share of the mining and energy sector and greater participation from manufacturing, agriculture, and services, adds new competitiveness challenges.
External uncertainty also adds to this outlook. The Bank highlighted risks associated with potential escalations in trade conflicts, migration measures in the United States, geopolitical tensions, and perceptions of the country’s sovereign risk. These factors may affect both capital flows and the behavior of the exchange rate and imported inflation.
Signals on the direction of monetary policy
The rate hike aims to reinforce the downward trend in inflation and prevent recent shocks from translating into persistent price pressures. The central bank made it clear that upcoming decisions will depend on the evolution of macroeconomic data and external risks, maintaining a flexible but vigilant approach to changes in the economic environment.
For households and businesses, the increase means that the cost of credit could remain high in the short term, which could moderate consumption and investment. However, from the central bank’s perspective, this temporary sacrifice is necessary to ensure price stability, a key element for sustained growth.
The decision marks the beginning of the monetary policy cycle in 2026 and sends a signal of prudence in a scenario in which the economy maintains momentum but faces inflationary pressures and external risks. The challenge for the bank will be to balance these factors without abruptly slowing the economic recovery or allowing inflation to move away from its downward trajectory.