Colombia central bank raises interest rate to 12.25%

Colombia’s central bank surprised many by raising its key interest rate by 25 basis points to 12.25% on Wednesday. The decision, which took place during a meeting attended by Finance Minister Miguel Gomez for the first time, came despite ongoing inflation struggles. Four out of seven board members approved the rate hike, while two voted to keep rates the same and one advocated for a larger 50-basis-point increase.

The bank's board members expressed worry over persistent price increases. Colombia’s annual inflation rate hit 6.24% in August, more than double the bank’s target of 3%. Headline inflation, a more immediate measure, climbed to an annual rate of 6.2%, driven largely by surging food prices (6.1%) and regulated prices (6.8%). The board also highlighted that El Niño’s arrival could further fuel inflation in these sectors.

Economic growth might be decelerating as global financial conditions tighten, following expectations of stricter monetary policy from advanced economy central banks. The rate hike follows similar moves by the US Federal Reserve earlier this month, while the UK and Mexico kept their rates steady, while Brazil cut its benchmark interest rate.