Colombia’s Central Bank takes a Surprising Slow‑Down on Rate Cuts
In a last‑minute twist at its final 2025 meeting, the Central Bank of Colombia decided to trim the policy rate by 25 basis points on Friday—much smaller than the big 50‑ or 75‑bp cuts many analysts were predicting.
Why the Board Split
- Five members grafted the 25‑bp reduction together.
- Two others felt the economy needed an even bigger squeeze, pushing for 50 and 75 bps cuts.
The split shows that folks on the board are feeling the tug‑of‑war between keeping inflation under control and nudging growth.
The Rate Path so Far
With this latest cut, the cumulative reduction for 2024 tops 350 bps, bringing the goal‑rate back down to around the market’s 13% starting point.
Inflation: The Big Show‑stopper
While headline inflation has been steadily falling—down to 5.2% in November—core inflation is stubbornly resisting the trend, especially in services. That’s why the bank is playing it safe. Even though the numbers look good on paper, the Central Bank wants to see a sustained march toward its long‑term target.
What’s Our Glimpse of the Future?
Here are some key take‑aways:
- Convergence to the inflation target is expected to take longer than the October meeting suggested.
- The peso has weakened recently, adding extra pressure to the inflation picture.
- Economic growth hit a modest plateau since 2022 and is still showing a sluggish quarterly pace in 2024.
- External risks loom: U.S. trade policy tightening and a less dovish Fed could weigh on the Colombian economy and the peso.
In short, the Central Bank is balancing a delicate dance—trying to keep prices from spiralling while not stifling the economy or falling prey to global shocks.
What Could This Mean for Us?
Some see the cautious cut as a sign that the bank worries there’s no big economic rebound on the horizon. Others think the move is prudent, keeping inflation from getting out of hand while still giving the economy a chance to breathe.
Stay tuned, because the next round of rate changes will tell us whether Colombia is truly taking the big steps needed for a stronger financial future.
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