UPDATE 2-Colombia's central bank shocks with 100-bp rate hike to 10.25%

Colombia's central bank raised its benchmark interest rate by 100 basis points to ‌10.25% on Friday, its first hike in nearly three years and a larger move than most analysts had expected, as policymakers pointed to rising inflation pressures, a sharp jump ⁠in inflation expectations and mounting fiscal and external risks.

Colombia's central bank raised its benchmark interest rate by 100 basis points to ‌10.25% on Friday, its first hike in nearly three years and a larger move than most analysts had expected, as policymakers pointed to rising inflation pressures, a sharp jump ⁠in inflation expectations and mounting fiscal and external risks. The increase was approved by a divided seven-member board: four directors voted for the 100-basis-point hike, two voted for a 50-basis-point cut and one backed holding the rate unchanged, according to the central ​bank's statement.

A Reuters poll found that 15 of 26 analysts predicted a 50-basis-point hike to 9.75%, with only ‍one predicting a 100-basis-point jump. In its discussion, the board cited December inflation of 5.1%, slightly below end-2024, but noted that core inflation picked up to 5.02% in December, from 4.85% in November. The bank's long-term inflation target is 3%, plus or minus one percentage point.

President Gustavo Petro raised ⁠the ‌minimum wage by 22.7% for this ⁠year, which is expected to stoke prices. Analysts in a Reuters poll on Friday predicted consumer price rises will be 6.32% at the ‍close of this year. The bank's technical team has revised its inflation outlook for this year to 6.3%, a significant uptick from ​a previous 4.1%, board head Leonardo Villar said during a press conference following the decision. Economic growth in ⁠2025 will have reached 2.9%, but will fall this year to 2.6%, he added.

The bank flagged a widening current account deficit, estimating it reached 2.4% ⁠of GDP in 2025, up from 1.6% in 2024, mainly due to faster import growth fueled by strong domestic demand alongside only modest export growth. The statement also highlighted elevated external uncertainty, citing risks from escalating trade conflicts, ⁠U.S. migration measures, geopolitical tensions and perceptions of Colombia's sovereign risk.

"The government declares its total disagreement with the decision," said Finance ⁠Minister German Avila, who ‌represents the government on the board, saying economic growth was on a sustainable path and higher rates could hurt consumption. Petro has repeatedly pushed to cut the rate.

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