Report of the Board of Directors to the Congress of Colombia - March 2026

Abstract

Macroeconomic Environment Global economy in 2025 was marked by an environment of high political and trade uncertainty, driven by the imposition of new tariffs by the United States. However, partial trade agreements between the US and other major economies were reached over the course of the year, helping to ease tariff-related uncertainty and mitigate some of these effects. Across Latin America, growth was heterogeneous and generally moderate, in contrast to the stronger dynamism of several emerging Asian economies, which exceeded the global average. In both advanced and emerging economies, inflation continued to ease throughout 2025. Lower cost pressures compared to previous years, together with still-restrictive monetary policies and a gradual normalization of labor markets, contributed to this price adjustment trend. The recently initiated war in Iran, which has rapidly spread to other countries in the Middle East, cast a new layer of uncertainty over the outlook for global growth, inflation, oil prices, international trade, and many other macroeconomic and financial variables. As a result, oil prices have exhibited significant volatility. In their most recent report, the International Monetary Fund (IMF) and the World Bank estimate global growth at 3.3% for 2025, while the Organization for Economic Cooperation and Development (OECD) estimates growth of around 3.2%, which does not incorporate recent geopolitical developments. Infographic highlighting the main figures of the international macroeconomic environment. Estimated global growth for 2025, IMF and World Bank: 3.3%; OECD: 3.2%. Economic Activity in Colombia In 2025, Colombia’s GDP grew by 2.6%, surpassing the figures recorded in 2023 (0.8%) and 2024 (1.5%). This outcome occurred within the context of an expansionary fiscal policy. Domestic demand remained strong, growing at an average rate of 4.4% annually during the first three quarters of the year and 3.9% for the year as a whole. Regarding the composition of demand, a bias toward overall consumption was observed, which increased by 4.2%. Household consumption expanded by 3.6%, driven primarily by durable goods, which typically have a high imported component. This is supported by a sustained increase in disposable income, resulting from higher minimum wages, stronger employment levels, a growing inflow of workers’ remittances, and increased income from coffee-related activities. Fixed investment grew by 1.3% in 2025. The main driver was investment in machinery and equipment, which boosted imports of capital goods throughout the year. In contrast, housing investment contracted by 6.5% from the already low levels observed in the previous year due to lower completion of construction projects in both the Low-Income Housing (LIH) and non-LIH segments. On the productive sector side, artistic, entertainment, and recreational activities were the most dynamic, expanding by 9.9% over the year, followed by trade and public administration and defense. In contrast, mining and quarrying was the sector with the sharpest decline, contracting by 6.2% year-on-year, followed by a 2.8% contraction in the construction sector, driven mainly by building activities. For 2026, Banco de la República’s technical staff expects GDP growth to be somewhat lower than in 2025. This outcome is likely to be partly driven by less favorable external conditions, given slower growth in remittances and in earnings from coffee exports, as well as the uncertain effects of the recent armed conflict in the Middle East. The cumulative effects of a restrictive monetary policy, aimed at moderating the pace of domestic demand growth to levels consistent with inflation converging toward its target, are also expected to constrain the rate of economic activity. Infographic highlighting the main figures on economic activity in Colombia in 2025. GDP growth: 2.6%. Growth in domestic demand: 3.9%. Total consumption growth: 4.2%; growth supported by a sustained increase in disposable income: higher minimum wages, stronger employment, growing remittance inflows, and increased income from coffee-related activities. Employment In 2025, Colombia’s unemployment rate continued to decline. Between the last quarter of 2024 and the same period of 2025, this rate fell by 1.1 percentage points (pp) in the national aggregate, bringing unemployment nationwide to 8.5% in the fourth quarter of the year. By geographical areas, the reduction in the unemployment rate was similar across urban areas, other municipalities, and rural areas, standing at 8.7% and 8.2%, respectively. By gender, unemployment rates stood at 6.6% and 11.1% respectively, for men and women in the fourth quarter of 2025, leaving the gender gap relatively stable at around 4.5 pp, a level below that observed before the pandemic. Salaried employment grew by 4.9% in the fourth quarter of 2025, while the non-salaried segment increased by 2.6%. For most of 2025, the informality rate declined to a historically low level; however, starting in the fourth quarter, it rebounded, standing at 55.8% during that period. This late-year growth in informality is consistent with the increase in non-salaried employment, a segment that is predominantly informal. By economic sector, the largest annual increases in informality as of the fourth quarter were recorded in industries such as mining, electricity, gas and water, and finance. On the other hand, the most significant reductions in the informality rate were observed in professional activities and in the agricultural sector. The hiring expectations balance reported in Banco de la República’s Quarterly Survey of Economic Expectations turned negative in January 2026, after posting positive results during 2025. Forecasts from the Bank’s technical staff are consistent with this signal, suggesting an upward trend in the urban unemployment rate, which is expected to average 9.0% in 2026. Infographic highlighting the main employment figures. Unemployment rate: 8.5% in the fourth quarter of 2025 in the national aggregate (a reduction of 1.1 pp compared to the fourth quarter of 2024). Growth in salaried employment: 4.9% in the fourth quarter of 2025. Growth in the non-salaried segment: 2.6%. BanRep’s technical staff forecasts an upward trend in the urban unemployment rate: 9.0% by 2026. Inflation Inflation in 2025 performed very differently from that observed a year earlier. In the first half of the year, it stopped declining, and at the beginning of the second half, it began to trend upward, rising from 4.8% in June to 5.5% in October, before easing slightly and reaching 5.1% by the end of 2025, very close to the level observed at the end of 2024. Similarly, core inflation (excluding food and regulated items) showed downward rigidity, standing at 5.0% in December 2025, only slightly below that figure recorded in December 2024 (5.2%). This performance was mainly driven by the strengthening of domestic demand, which grew at an average rate of 4.4% in the first three quarters of the year and 3.9% for the year as a whole, in response to growth generated by increased private and public spending. In addition, a growing process of price indexation contributed to this trend, stimulated by rising inflation expectations and increases in the minimum wage, which rose by 11% in 2025, including transport allowance, a figure that doubled the inflation observed in 2024. Inflation in regulated items declined from 7.3% to 5.4% between 2024 and the end of 2025, although it remained above the inflation target due to significant adjustments in transportation, education, and gas tariffs, among other factors. In January 2025, headline inflation and core inflation expectations by December 2026 were 3.6% and 3.3%, respectively, reflecting their confidence that inflation would continue a downward path, gradually converging toward its target over a two-year horizon. These expectations gradually increased as analysts noted the persistent downward rigidity of inflation over the course of 2025. Thus, by December 2025, analysts had revised their expectations for headline and core inflation for the end of 2026 to 4.6% in both measures. However, the strongest shock came with an increase in the minimum wage for 2026, set at just over 23%, which led analysts in January 2026 to further raise their year-end 2026 expectations to 6.4% for headline inflation and 6.7% for core inflation. When comparing these latest expectations with those held by analysts in December 2025, this shows that the upward revision for year-end 2026 amounted to 180 basis points (bps) for headline inflation and 210 bps for core inflation. Infographic highlighting the main inflation figures. Annual inflation at the end of 2025: 5.1%. Analysts’ expectations on headline inflation for the end of 2026: 4.6% in December 2025, following an upward revision of 180 bps, 6.4% in January 2026. Core inflation expectations: 4.6% in December 2025, following an upward revision of 210 bps, 6.7% in January 2026. Monetary Policy The evolution of inflation and inflation expectations in 2025 did not provide appropriate conditions to continue reducing the monetary policy interest rate that had been undertaken in 2024. The only cut in the monetary policy interest rate in 2025 was implemented at the late-April meeting of the BDBR, when it was reduced from 9.5% to 9.25%. When comparing the increase in analysts’ expectations in January 2026 with those in December 2025, the BDBR, at its January meeting, decided by majority vote to raise the monetary policy interest rate by 100 basis points, to 10.25%. This increase, although significant, was insufficient to offset the reduction in the real ex-ante interest rate resulting from the upward revision of inflation expectations. In the minutes of the January meeting of the BDBR, the members of the majority group stated that this was an essential decision to prevent a persistent de-anchoring of inflation from the target and