June unemployment was 8%, the lowest for that month since 2018

The central bank of Colombia, Banco de la República, has decided to keep its benchmark interest rate unchanged at 12 percent, according to a statement released after a meeting of its governing board. The decision was reached by majority vote, with four members supporting the status quo and three advocating for a 50 basis point increase. This marks the second consecutive meeting where the bank has opted against raising rates, signaling a shift in monetary policy amid ongoing economic conditions. The decision comes as inflation continues to rise, though the central bank maintains that the current level of interest rates still provides sufficient room to manage price pressures without further tightening. Inflation has remained stubbornly high, driven largely by global energy prices and domestic supply chain constraints. However, recent data suggests that wage growth has begun to moderate, which could ease upward pressure on prices over time. The central bank’s governor, Leonardo Villar, emphasized that the current monetary stance remains restrictive, underscoring the need to maintain control over inflation while ensuring that economic growth does not slow too sharply. The bank has raised rates by 275 basis points since January, including increases of 100 points in January, another 100 in March, and 75 in June. These hikes were aimed at curbing inflation, which had surged above the target range earlier this year. Meanwhile, employment figures have shown signs of improvement. According to the latest labor market report, the unemployment rate for June stood at 8 percent, the lowest for that month since 2018 under the current methodology. The decline was more pronounced in smaller municipalities outside major cities, where the rate dropped from 8.3 percent to 8 percent. In contrast, rural areas saw a slight increase, rising from 5.8 percent to 6.7 percent. The sectors contributing most to job creation were hospitality and food services, as well as construction, indicating a gradual recovery in private-sector activity. The gender gap in unemployment also narrowed slightly, with the difference between male and female unemployment rates decreasing to 3.3 percentage points. This represents a small but positive trend compared to the 3.9-point gap recorded in June 2025. Despite these improvements, the labor market remains uneven, with urban centers continuing to see stronger job growth than rural regions. As the economy navigates these mixed signals, the central bank faces a delicate balancing act. On one hand, persistent inflation requires continued vigilance, and on the other, a resilient labor market suggests that the economy can absorb higher borrowing costs without immediate harm. Analysts suggest that the bank will likely remain cautious, given the uncertainty surrounding global economic conditions and the potential for further inflationary pressures. The next key decision on interest rates is expected later today, as the central bank prepares to release its final policy update during the administration of President Gustavo Petro. With inflation remaining elevated and the labor market showing strength, the bank will weigh whether to maintain its current stance or take further action to stabilize prices. The outcome will depend on how incoming data shapes the central bank’s assessment of risks to price stability and economic growth.