The Colombian peso has been strongly appreciating, causing the dollar to fall to very low prices, so much so that experts point out that this value does not reflect the long-term reality of the economy.
According to an analysis by Bancolombia, this drop in the US currency is mainly due to two things: the dollar has weakened globally and the Banco de la República sharply raised its interest rates to 12.00% (a higher increase than experts expected).
With high rates, Colombia becomes a very attractive place for foreign investors, which brings more dollars into the country and causes the peso to increase in value.
The Representative Market Rate (TRM) for July 7, 2026 was set at 3,350.68 pesos, after the currency gained 15.77 pesos on Monday following an average closing price of 3,350.70 pesos over the previous TRM of 3,334.93 pesos. The dollar had a maximum price of 3,361 pesos and a minimum of 3,330 pesos.
Is the dollar’s drop more than it should be?
According to an analysis by Bancolombia, the dollar’s drop in the country has occurred because local factors have gained prominence in the appreciation of the Colombian peso and explain about half of its movements. “In June, the risk premium registered a significant correction, reflecting a improvement in sovereign risk perception associated with the change of government,” they highlighted.
The entity’s analysts detail that the current price is pressured downward also by extraordinary factors that disrupted the foreign exchange market balance, largely explained by a strong flood of dollars in the local market.
Specifically, between September and December of last year, the Ministry of Finance massively sold nearly 9 billion dollars to finance various internal government movements. This liquidity injection included an unprecedented operation: the sale of 23 trillion pesos in public bonds directly to the foreign firm Pimco. “All this abundance of currency circulating simultaneously in the trading desks ended up crashing the price of the US currency,” they detail.
To this excess supply are added highly attractive local interest rates.
The other point is that the Board of Directors of Banco de la República resumed its upward cycle and the rate is at the highest level since March 2024.
This restrictive stance generates a very favorable rate differential compared to developed economies, attracting foreign capital that strengthens the Colombian peso.
They also highlighted that unemployment in Colombia hit a new historic low in May, Fedesarrollo’s business indices deteriorated in May, and they add that inflation would complete four months of increase in June and would be at the highest level since July 2024. In the same vein, goods exports would have continued their double-digit growth in May.
Also influential were the reduction in the country risk premium (reflected in the drop of five-year Credit Default Swaps) and the rebound in terms of trade thanks to international Brent oil prices, which has maintained a steady flow of currency into the country.
What is the real or ‘equilibrium’ value?
For Bancolombia, isolating these temporary liquidity factors and comparing them with the reality of exports, inflation, and the behavior of regional peer currencies, it is evident that the exchange rate is misaligned from its long-term values.
In line with this diagnosis, Grupo Cibest’s technical balance models indicate that the formal theoretical exchange rate of the economy should currently be at 3,710 pesos.
Similarly, incorporating medium-term variables, this analysis places the ideal technical equilibrium range for the country between 3,710 and 3,880 pesos, warning that operating below this level generates a worrying loss of competitiveness for the export sector and local industry.
What forces will determine the speed and direction of the exchange rate?
The analysts’ consensus points to the exchange rate progressively returning to its fundamental level, driven by a shift in external forces, but this would not be seen in 2026.
According to the analysis, internationally, the margin for further depreciation of the global dollar seems exhausted, especially given the prospect of a more restrictive monetary stance by the United States Federal Reserve (Fed), which will exert natural upward pressure on emerging market currencies.
However, the correction process will not be symmetrical or immediate, but will respond to two factors.
The first is that an abrupt rebound in the currency is not expected due to the remaining liquidity still being absorbed by the Colombian financial system, and it is estimated that the dollar will fluctuate within a technical transition operating channel between 3,400 and 3,650 pesos in the coming months.
“However, the pace at which it rises will depend on key things such as inflation control, the weather (due to the El Niño phenomenon), and how much sectors like construction and energy production grow in the country,” explains Bancolombia.
The second factor is the medium-term structural convergence in 2027, “macroeconomic models indicate that the definitive approach to the long-term equilibrium value —formally surpassing the $3,700 peso barrier— will consolidate stably during 2027, as the extraordinary supply factors fully dissolve,” the analysis details.
The actual speed of this normalization will remain strictly subject to meeting internal macroeconomic targets.
For analysts, the main focus will be the consolidation of fiscal discipline by the new National Government, the evolution of the Consumer Price Index (CPI), security conditions, and the lag in strategic sectors such as mining-energy and construction.