Finance Minister Germán Ávila walked out of a central bank board meeting, accusing it of going against Colombia’s national interests and deepening institutional tensions.

Colombia’s Finance Minister Germán Ávila abandoned a meeting of the board of the central bank (Banco de la República), on April 1 in protest over two decisions by the institution: the release of an internal document without prior consultation, and a 100-basis-point increase in the benchmark interest rate, which was raised to 11.25%.

According to the finance minister, the disclosure of the document, which involved both institutions and was linked to a draft government decree, constituted an “abuse.”

He also described the rate hike, the second so far this year, as “irresponsible and inconvenient,” arguing that it contradicts the government’s economic growth strategy.

The central bank said the decision was approved by a majority of its board: “four members voted in favor of the increase, two supported a 50-basis-point cut, and one proposed keeping the rate unchanged.”

The bank justified the move by noting that inflation stood at 5.4% in January and 5.3% in February, above the 5.1% recorded at the end of 2025. It also warned of external risks, including the impact of the conflict in Iran on the global economy, which could increase the cost of key imports such as gas and fertilizers and add to inflationary pressures later this year.

It remains unclear whether Ávila’s withdrawal from the board will be temporary or permanent, but the episode marks a new point of institutional tension that could influence the direction of monetary policy in Colombia in the coming months.

Clash between monetary policy and government strategy

Ávila criticized the decision, saying the central bank is overlooking the country’s economic progress. “The decision taken by the central bank is repetitive and continues to ignore the national government’s efforts to ensure fiscal stability and sustained economic growth,” he said.

He also argued that the increase is disproportionate compared with global trends. “There is not a single economy in the world proposing a 200-basis-point increase in the benchmark rate in the current global context,” he said, referring to the fact that the bank had already raised rates by 100 basis points in February, meaning a total increase of 200 basis points in just four months.

The government maintains that macroeconomic conditions remain stable, pointing to controlled inflation, a relatively stable Colombian peso (COP) against the dollar, declining unemployment and solid productive growth, and argues that tighter monetary policy is unnecessary.

Debate over central bank independence

The Finance Ministry said the minister’s decision to leave the meeting does not seek to challenge the independence of the central bank, but rather to highlight the need for its decisions to align with the country’s economic and social reality.

However, the move has raised legal and institutional concerns. Central bank chairman of the board, Leonardo Villar noted that the finance minister has a constitutional obligation to attend board meetings, as he “not only represents the government but also lead the meetings” said in a public interview broadcasted by media outlet like La República.

He warned that an indefinite absence could amount to a breach of legal duties and urged President Gustavo Petro to appoint an “ad hoc” delegate if the minister decides not to attend future meetings.

Experts say the minister’s absence could affect the board’s ability to make decisions. According to Andrés Pardo, former deputy finance minister and head of Latin America macro strategy at XP Investments, in an interview with Valora Analitik, “current regulations require at least five members, including the finance minister or a delegate, for the board to deliberate and decide”.

This could mean that, without his presence, the central bank may be legally unable to adopt monetary policy decisions.

Economic impact

The rate increase could have significant effects on the real economy. According to the Finance Ministry, a move of this magnitude could slow economic recovery, increase borrowing costs for households and businesses, and raise debt servicing costs.

Small and medium-sized companies, construction, retail and tourism are expected to be among the most affected sectors, along with households holding variable-rate loans.

Lower-income groups could face the greatest impact, as reduced purchasing power and tighter access to credit may deepen economic inequality.

The bank’s analysts say that the increase still doesn’t include the effects of Gustavo Petro’s 23% decreed increase in the country’s legal minimum wage.

According to a report by the Economic, Industry & Market Research Area of Bancolombia (BVC: BCOLOMBIA, NYSE: CIB), annual inflation in Colombia rose by 25 basis points to 5.35% in January 2026. This monthly increase of 1.18% represents the highest inflation level since October 2025.

The data, originally prepared by the National Administrative Department of Statistics (DANE), indicates that 70% of the January inflation print was concentrated in the services and regulated components. These two sectors contributed 83 basis points of the total 118-point monthly increase, largely driven by the initial stages of annual cost pass-throughs associated with high indexation.

Businesses should prepare for more intense inflationary pressures in February and March 2026 as the full impact of the minimum wage increase and renegotiated supplier contracts take effect.

Sectoral Impacts and Service Acceleration

Annual inflation in the services category accelerated by 40 basis points to reach 6.33% in January, its highest level since April 2025. The monthly variation of 1.18% in this sector was nearly double the historical January average of 0.63%.

Bancolombia analysts attribute this acceleration to early adjustments linked to the 23% minimum wage increase for 2026 and indexation to previous years’ inflation. Notable increases were observed in:

• Full-service restaurant meals: 3.36%
• Prepared meals consumed outside the home: 2.38%
• Domestic services: 5.16%
• Imputed rent: 0.43%

The regulated group also saw an acceleration, with annual inflation rising to 5.47% from 5.40%. This was primarily explained by adjustments in urban transportation, vehicle fuels, natural gas, and tolls.

Food and Goods Price Momentum

Annual food inflation edged up slightly to 5.10% from 5.06%. Perishable foods saw an acceleration to 4.69% due to seasonal and supply factors affecting products such as tomatoes, potatoes, and plantains. Processed foods, including beef, milk, and poultry, reflected early-year cost pass-throughs, though annual inflation in this sub-group eased to 5.23%.

The goods category reached its highest level since March 2024, at 2.93%. Price hikes in this segment were driven by new taxes on alcoholic beverages enacted under the economic emergency, as well as pharmaceutical products. Conversely, price declines were noted in personal hygiene products, vehicles, and appliances, benefiting from the recent appreciation of the exchange rate.

Monetary Policy Implications and Forecasts

The Central Bank of Colombia (Banco de la República) faces continued challenges in converging toward its 2% to 4% target range. Core inflation, excluding food and regulated items, reached its highest level since November 2024, indicating persistent upward pressure.

Bancolombia forecasts that year-end inflation will reach 6.4%. The analysts suggest that the full impact of the minimum wage increase has not yet been reflected in consumer prices, as many firms are still operating with inventories purchased at previous cost levels.

Consequently, the Central Bank is expected to continue raising its monetary policy rate to anchor inflation expectations. Bancolombia anticipates the policy rate could rise to 11%, noting that the challenging outlook introduces a hawkish bias to future decisions.

Photo courtesy Bancolombia