Banco de la República raises rates to 12% amid internal divisions

The Board of Directors of the Banco de la República decided to increase the interest rate by 75 basis points, to 12%, in a vote that revealed deep discrepancies regarding the diagnosis of inflation.

The Banco de la República raised its monetary policy interest rate to 12%, following an increase of 75 basis points, according to the minutes of the meeting published on July 3. The decision was not unanimous: four members voted in favour of the increase, two proposed a reduction of 50 basis points, and one advocated for keeping it unchanged.

Persistent inflation and domestic demand

The majority of the board members justified the increase by arguing that inflation continues to show resilience and that price pressures have extended to a good part of the household basket. According to the Board's analysis, the growth of domestic demand, driven by consumption and the increase in the minimum wage for 2026, maintains inflationary pressures.

The board members also warned about the risk of a de-anchoring of inflation expectations, meaning that households, businesses, and investors could anticipate high levels of inflation for an extended period, complicating the return to the central bank's target.

Dissenting voices and fiscal criticisms

However, part of the Board believes that the root of the problem does not lie in excessive consumption, but in supply factors, such as rising costs and external pressures, on which a higher interest rate would have a limited impact. The members who defended reducing or maintaining the rate argued that further tightening of monetary policy could unnecessarily hinder economic activity without addressing the structural causes of inflation.

The minutes also reveal criticisms of fiscal management: the high fiscal deficit would be contributing to strengthening domestic demand, counteracting the efforts of the central bank. While the Banco de la República seeks to moderate consumption through higher rates, public spending would continue to drive the economy in the opposite direction.

Impact on households and businesses

With the interest rate at 12%, the cost of credit for households and businesses could remain high in the coming months, affecting products such as consumer, mortgage, and commercial loans. The decision aims to contain price growth and preserve economic stability in the medium term, the main objective of the central bank.

The Board reiterated that future decisions will depend on the behaviour of inflation, economic activity, and market expectations. The decision highlights that, although there is consensus on the need to control inflation, there is no single view on its causes or the most appropriate way to address it.

For Colombians, this translates into higher credit costs, which can affect everything from home purchases to financing small businesses. Analysts recommend reviewing loan conditions and avoiding unnecessary indebtedness while monetary policy remains restrictive.