A diverse group of four professionals (two women and two men) gathered in a bright, industrial-style office, meticulously reviewing blueprints and financing plans for a housing project. In the center, a man with dreadlocks wearing a brown shirt points at a document with a pen, while his colleagues look on with serious, focused expressions. On the table sits a detailed scale architectural model of a residential complex featuring several modern apartment buildings. Framed by indoor plants and warm afternoon sunlight streaming through a large window, the scene symbolizes financial decision-making, corporate planning, and project viability challenges amidst high interest rates.

Why borrowing remains expensive, even as inflation eases

4mins read

Jun 29, 2026

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Even as prices begin to stabilize, the cost of borrowing has not followed the same path. The gap points to something deeper than bank-level decisions.

When someone applies for a loan, attention tends to settle on a single figure: the interest rate. It determines the monthly payment and the total cost of the debt. But that rate is not set at the moment a borrower sits down with a bank. It reflects a broader economic backdrop shaped by risk perception, fiscal management, and the level of confidence a country inspires in financial markets.

At its core, the interest rate is the price of money. Like any price, it reacts to signals. Some are visible, such as inflation or central bank policy decisions. Others operate at a more structural level, including the credibility of public finances and the government’s ability to sustain its debt over time.

Deficits, debt, and the signals markets read

Fiscal performance has become a key reference point for investors and analysts. In its latest assessment, the International Monetary Fund noted that Colombia’s central government fiscal deficit rose to 6.7 % of GDP in 2024, up from 4.2 % in 2023, exceeding the target set in the Medium-Term Fiscal Framework.

Debt figures, however, vary depending on the methodology used. Estimates from international organizations place public debt at around 61.3 % of GDP in 2024, while official data from the Banco de la República put it closer to 48 %. The difference reflects what is counted and how it is measured.

For markets, the exact number matters less than the direction of travel. The size of the deficit, the pace at which debt is growing, and the clarity of the fiscal strategy all feed into how country risk is assessed.

When the government pays more, everyone pays more

That assessment translates into tangible costs. In 2025, long-term Colombian government bonds have offered double-digit yields. In practical terms, this means the country must pay higher interest rates to secure financing in international markets.

The impact does not stop at the sovereign level. The government competes for the same pool of savings that financial institutions rely on to lend. When it has to offer higher returns to borrow, those conditions tend to ripple through the system. Business loans, mortgages, and consumer credit become more expensive, even for borrowers with solid credit histories.

This dynamic helps explain why access to credit is not determined solely by an individual’s financial profile. It is also shaped by the broader macroeconomic environment in which banks and investors operate.

Three corporate professionals (a woman and two men) gather around to analyze a large, detailed scale architectural model of a modern urban development surrounded by miniature trees. The woman on the left wears a formal terracotta blazer; the man in the center points directly at a section of the project, while the colleague on the right in a beige suit observes thoughtfully. The lush setting features abundant indoor tropical plants behind large glass windows, capturing corporate project planning, financial cost evaluation, and real estate development strategy amid high borrowing rates.

Inflation slows, but rates hold their ground

One of the most common questions in this context is why borrowing costs do not fall as quickly as inflation. The answer is that inflation is only one piece of the puzzle.

Markets also weigh fiscal credibility, the stability of economic rules, and the consistency of public policy. When doubts emerge in any of these areas, perceived risk remains elevated, and the price of money does not decline in step with consumer prices.

In that sense, interest rates reflect more than current inflation. They capture a wider judgment about the resilience of the economy, formed well before credit reaches households and businesses.

What this means for borrowers

Although these forces may seem distant, their effects are immediate. Small and medium-sized businesses, entrepreneurs, and households seeking to finance housing or consumption are often the first to feel tighter credit conditions. Higher monthly payments, stricter terms, and reduced investment capacity follow.

Understanding the cost of borrowing requires looking beyond the contract. The rate attached to a loan is the endpoint of a chain that begins with public finances, runs through country risk perceptions, and ultimately takes shape in the financial system.

In the end, interest is not just a technical figure. It is a measure of trust. And that trust, as reflected in official data and multilateral assessments, is built through consistent signals over time. When those signals weaken, the price of money shifts long before a borrower walks into a bank.