The Banco de la República raised Colombia’s benchmark interest rate by three-quarters of a percentage point to 12% on Tuesday, resuming a tightening cycle that had been paused in April. The decision passed by a 4–3 vote, with two board members favouring a half-point cut and one backing no change. The move surprised a segment of analysts in Bogotá, where a majority of forecasters had expected a smaller increase of 50 basis points.

The board cited an inflation rate that remains well above its 3% target. Annual consumer price growth reached 5.8% in May, while core inflation, which strips out volatile food and energy items, stood at 6%. Inflation expectations derived from surveys and bond markets have risen across all horizons this year and, despite a partial reversal in June, continue to signal price pressures significantly above target. The central bank also pointed to robust domestic demand, historically low unemployment of 8%, and sharp wage increases as factors sustaining underlying inflation. External uncertainty linked to the Middle East conflict and its effect on fuel and fertiliser prices added to the case for tightening.

The rate increase unfolded against a transformed political backdrop. A court ruling in May suspended a regulation that had required the finance minister’s presence for the board to convene, effectively removing the government’s ability to paralyse monetary policy decisions. That ruling followed months of open friction, with Finance Minister Germán Ávila having declared a “break in relations” with the bank and repeatedly criticising rate rises as harmful to growth. The election this month of conservative Abelardo de la Espriella as president, defeating a left-wing ally of outgoing President Gustavo Petro, further eased investor concerns about political interference in the central bank. Ávila, who voted for a reduction, called the majority decision “wrong” and warned it would hurt economic expansion.

Colombian bonds and the peso strengthened after the announcement, according to market reports. The central bank has now lifted rates by 275 basis points since the start of the year. The next milestone for markets will be the transition to the De la Espriella administration, which will inherit a board whose non-government members remain in place for two more years, and the release of June inflation data that will test whether price pressures are beginning to ease.