Colombia Raises Its Policy Rate to 12.25%

Colombia’s central bank did on Wednesday what almost nobody expected: it raised rates. The 25-basis-point move to 12.25 percent breaks a hold that had stood since July, and it landed while the peso was already firming.

What the Board Decided

The Banco de la República’s seven-member board, chaired by Governor Leonardo Villar, voted on Wednesday 30 September to raise the monetary-policy rate by 25 basis points, from 12 percent to 12.25 percent. The split shows a divided board: four directors backed the 25-point rise, two voted to keep the rate unchanged, and one wanted a 50-point increase, according to the bank’s statement, published the same day.

The rate had stood at 12 percent since 1 July. That level itself was the product of an unusually aggressive year: the board raised by 75 basis points to reach 12 percent in late June, with four directors in favor, two preferring a 50-point cut and one for a hold. The year’s cumulative tightening now stands at 300 basis points.

Why It Surprised

The consensus going in was a hold. The August edition of the Encuesta de Opinión Financiera, the Fedesarrollo and stock-exchange survey that serves as the market’s reference, showed analysts expecting the rate to stay at 12 percent through year-end. Nothing in the public record ahead of Wednesday’s meeting signaled a move, and the board had paused in July precisely to assess whether the earlier hikes were working.

The board’s published reasoning has turned on persistence: annual inflation rose again to 6.2 percent in August (6.24 percent in DANE’s unrounded figure), from 6.1 percent in June, against a 2-to-4-percent target range, with services inflation at 7.2 percent and expectations still above target at all horizons. The full argument for Wednesday’s move will be visible in Monday’s minutes.

The Peso Moved the Other Way

Rate hikes usually support a currency, and this week Colombia’s peso barely needed the help. The Superfinanciera’s TRM, the official reference rate, is certified at 3,312.84 pesos per dollar for Thursday 1 October, from 3,341.23 on Wednesday and 3,349.63 on Tuesday: two firmer days running, though the peso remains weaker than it was earlier in the month. An overnight market estimate (open.er-api.com, 00:02 UTC Thursday) sits near 3,334 (an estimate, not the certified rate).

For practical conversion: US$1,000 buys COP 3,312,840 at the TRM, and a COP 3,000,000 rent works out to about US$906. Two firmer days have quietly made dollar-funded life in Colombia a little more expensive in peso terms.

What This Means for Expats

Borrowing. Mortgage, consumer and card rates in Colombia reference the central bank’s stance through the DTF and IBR indexes; a higher policy rate feeds through to new loans first and to existing variable-rate credit with a lag. If you were weighing a peso loan or a property purchase on credit, price it again.

Saving. The flip side: term deposits (CDTs) and savings products tend to follow the policy rate up. Shop the rate before renewing.

Converting. The stronger peso cuts both ways. Dollar earners get fewer pesos per transfer: US$1,000 now converts to about COP 37,000 less than it did at Tuesday’s rate. Peso earners with dollar obligations get relief.

The frame. The hike lands while the government is in early talks with the IMF, opened by the president on Sunday, and while Bogotá’s new tax reform, worth about US$324 million a year, moves through implementation. It was also the first rate decision for Finance Minister Miguel Gómez, who sits on the board for the new government; Gómez said afterwards that the board concluded “a moderate 25-basis-point increase in the interest rate was the best policy.” The central bank is signaling it will defend the inflation target.

What Is Not Yet Known

Whether 12.25 percent is the end of it. The split (four for the rise, two for a hold, one for a 50-point increase) shows a board arguing about speed, not direction, and Monday’s minutes will reveal how much weight each side gave to August’s 6.2 percent inflation print versus the peso’s recent firmness, which some directors have previously flagged as a reason not to raise. Until then, any account of the internal debate beyond the vote count is inference.

More: Colombia news in English, every day from The Rio Times. See also our LatAm Expat & Nomad Daily Guide for Thursday, October 1 and the earlier Colombia IMF talks standalone. Related: Colombia Markets: COLCAP Slips 0.38% as BanRep Surprises With 12.25% Hike, Colombia Inflation Accelerates to 6.24 Percent in August and Colombia Unemployment Rises to 9.4% in August, Up From 8.6% a Year Earlier.