Why Colombia’s Central Bank May Start Raising Interest Rates Again In January
Key Points
- Colombia’s central bank is expected to resume rate hikes from January after inflation proved stickier than planned.
- Strong domestic demand and an aggressive 2026 minimum wage push risk reigniting price pressures and hurting jobs.
- Market analysts see several small rate moves taking the policy rate from 9.25% to about 10% by April.
Banco de la República is moving back into the spotlight as Colombia enters a delicate phase in its inflation fight. After months holding the policy rate at 9.25%, several major banks now expect a first 25-basis-point hike in January, with more to follow in early 2026.
The problem is simple but uncomfortable. Inflation eased only slightly in November, remaining far above the 3% target.
The most stubborn parts are services and contracts indexed to past inflation. Prices are no longer exploding, but they are not cooling fast enough to let the central bank relax.
At the same time, domestic demand is running hot. Household consumption has been one of the main engines of growth, expanding about 1.4 percentage points faster than overall GDP in the last quarter.
Wage Pressures Test Colombia’s Monetary Discipline
That gap signals an economy spending more than it produces, pulling in imports, worsening the external balance and putting extra pressure on prices.
Then comes the political minefield: the 2026 minimum wage. With November inflation as the legal reference, plus roughly 0.9% productivity, the technical floor points to a wage increase of about 6.2%.
Unions are pushing for much more, and government voices talk about double-digit rises. Some private analysis assumes an 11% hike that would lift the minimum package close to 1.8 million pesos. Central bank staff see a safer band between 6% and 8%.
Higher wages can be good news, but not if they force firms to cut jobs or pass the full cost on to consumers. That risk is amplified by new labor rules that raise hiring costs and by a still-wide fiscal deficit.
Against this backdrop, Banco de Bogotá’s research team expects 25-point rate hikes in January, March and April, taking the policy rate to around 10% before pausing.
BTG Pactual argues that current borrowing costs have not been tight enough to cool demand or reset inflation expectations.
President Gustavo Petro has publicly criticized high rates, but the real test now is whether Colombia lets short-term politics dictate monetary policy, or gives its central bank the space to restore price stability, protect savings and avoid a deeper crisis later.
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