Central Bank unexpectedly leaves rates unchanged in July

Bank stands pat: At its meeting on 31 July, the board of directors of the Central Bank of Colombia (Banrep) decided to keep the monetary policy interest rate steady at 9.25%. The board was split: Four voted in favor of the hold, two supported a 50 basis points reduction and one backed a 25 basis points decrease. As a result, the final decision surprised markets, which had penciled in a cut.

Above-target inflation and fiscal woes drive the decision: The Central Bank’s decision was driven by two key domestic factors: above-target inflation and concerns over fiscal metrics. Regarding inflation, the Bank highlighted that while price pressures and inflation expectations declined in June, they are still above the upper bound of the 2.0–4.0% target range. On the fiscal side, the Bank pointed to persistent fiscal imbalances that could pose significant challenges, particularly as global shocks and uncertainty have already deteriorated financing conditions. These circumstances could trigger a sharp depreciation of the national currency, further fueling inflationary pressures.

Bank to cut ahead: The Central Bank offered no explicit forward guidance on the future path of interest rates, stating only that upcoming decisions will depend on the evolution of incoming data. That said, Banrep’s decision drew government criticism; authorities had been advocating—and exerting pressure—for a rate cut to stimulate the economy ahead of the 2026 elections. Despite the Bank’s stance, our panelists continue to project rate cuts totaling between 50 and 225 basis points by the end of 2025. The Bank’s next policy meeting is scheduled for 30 September.

Panelist insight: Commenting on the outlook, Santiago Tellez, analyst at Goldman Sachs, stated: ”We maintain our base case that the cutting cycle will resume […]. Overall, we still expect a terminal rate of 7.5%, but risks are skewed towards a slower cutting cycle than previously anticipated. While we expect moderation in private domestic demand growth, this deceleration may not be sharp enough to prompt a more decisive near-term response from the hawkish MPC camp, potentially delaying our forecast of 25bp rate cuts in upcoming meetings.” On a more hawkish tone, Itaú Unibanco analysts stated: “Amid fiscal imbalances, a tight labor market and rising inflationary pressure, there is limited room to resume the interest rate cutting cycle in the short term. Potential price pressures stemming from gas prices and the upcoming adjustment to the minimum wage could further hinder the disinflation process, supporting a cautious stance by the Central Bank.”

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