Central Bank of Colombia explains rate hold as inflation rises to 6.3%

The Central Bank of Colombia detailed the reasoning behind its majority decision to leave the policy interest rate unchanged, maintaining a restrictive stance while assessing signs of easing underlying inflation pressures and slower growth. Other board members favored a 25 basis point increase, arguing that persistent inflation and elevated expectations required further tightening to restore credibility in the 3% inflation target. Annual headline inflation edged up to 6.3% in September, but core inflation excluding food and regulated items declined from 6.1% to 6.0%. Economic growth is estimated to have slowed in the third quarter, with indicators pointing to weaker consumption growth. Members supporting the pause considered the evidence of easing excess demand inconclusive and sought to avoid excessive tightening while assessing whether the decline in core inflation persists and how El Niño affects food and regulated prices. One member initially advocated a 50 basis point cut but backed the hold to help secure a majority. Inflation expectations remained a concern: analysts’ expectations for December 2026 rose slightly to 6.9%, while expectations derived from government debt securities remained above target across all horizons. Members favoring an increase sought to prevent inflation in 2027 from exceeding the staff forecast of 4.8% and accelerate convergence to target in 2028. They warned that delaying tightening would increase future output and employment costs, particularly as the output gap is expected to close by mid-2027 and turn negative thereafter. They also highlighted the risk that a strong El Niño would amplify food and energy price pressures amid insufficient domestic gas production.