Surprising monetary policy decision by the Central Bank of Colombia: Interest rate is lowered by 25 basis points – London Business News | Londonlovesbusiness.com

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In its final meeting of 2025, the Central Bank of Colombia surprised markets by moderating the pace of monetary easing, lowering the interest rate by 25 basis points on Friday.

This decision, contrasting with widespread expectations of a larger cut and a continuation of the normalization pace seen in the past six meetings, reveals growing caution amid persistent underlying inflationary pressures.

The board’s vote showed a split: five members voted for a 25 bps reduction, while two others proposed more aggressive cuts of 50 and 75 bps, respectively. This diversity of opinions highlights the complexity of the current economic landscape.

With this move, the total rate cuts for 2024 reached 350 bps, after starting the year with an interest rate of 13%. While headline inflation metrics have shown a favorable downward trend, standing at 5.2% in November, resistance in the core component, especially in the services sector, has led the Central Bank to recalibrate its expectations.

The persistence of core inflation, particularly in the services sector, seems to have compelled the entity to act with prudence. Although headline inflation has performed better, the focus appears to be on ensuring a sustainable convergence towards the target set by the Colombian entity.

The central bank acknowledges that convergence to the inflation target will take longer than anticipated in the October meeting. Additionally, the recent weakness of the Colombian peso adds to inflationary concerns.

This decision also reflects the need to revitalize Colombia’s economy, which has shown moderate growth since 2022, with a slower pace on a quarterly basis in the second and third quarters of 2024, nearing stagnation.

However, the economic outlook remains uncertain, especially with the potential adoption of more restrictive trade policies by the United States, which could have a negative impact on Colombia. This is compounded by the less accommodative stance of the Federal Reserve (Fed), which could pressure the Colombian peso as the Central Bank continues rate cuts.

In summary, the Central Bank’s decision reflects a delicate balance between controlling inflation, supporting the economy, and managing external risks. The moderation in the pace of rate cuts suggests a more cautious stance amid persistent core inflation pressures and the uncertainty of the global context. This caution, however, could be interpreted by some as a sign of concern over the lack of a more significant economic recovery



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