Colombia: Banrep slashes rates again in July
Latest bank decision: At its meeting on 31 July, the Board of Directors of the Central Bank of Colombia (Banrep) decided to reduce the policy interest rate by 50 basis points to 10.75%, meeting market expectations. The decision, which mirrored June’s same-sized cut, was once again not unanimous: Two of the Board’s seven members preferred a 75 basis point cut.
Monetary policy drivers: The move was primarily targeted at supporting the ongoing recovery in economic activity. A continued decrease in inflation, excluding food and regulated items—to 6.0% in June—and stable inflation expectations gave the Bank room to cut. That said, stable headline inflation, rising price pressures for food and persistent upside inflationary risks likely dissuaded a larger cut.
Meanwhile, Banrep upgraded its 2024 growth forecast to 1.8% from 1.4%.
Policy outlook: In its communiqué, Banrep provided no specific forward guidance but underlined its commitment to supporting the ongoing recovery in economic activity, while being mindful of lingering risks to the inflation outlook; the Bank’s main priority is to drive inflation towards its 3.0% target by 2025. Our Consensus is for 225 basis points of further cuts by year-end but the spread remains large, at 100–425 basis points.
The Bank’s next meeting is scheduled for 30 September.
Panelist insight: Analysts at Itaú Unibanco commented:
“The speed of the disinflationary process and the fall in inflation expectations will determine when the Board feels comfortable accelerating the cutting pace. With activity being revised up, and diesel prices likely to stall the disinflation process, medium-term inflation expectations are likely to remain sticky above the 3% target. As a result, we expect the Board to cut by another 50bp at the September 30th meeting.”
Goldman Sachs’ Santiago Tellez said:
“We maintain our base case of moderate 50bp cuts in upcoming meetings. From a macro standpoint, the hurdle for larger cuts continues to be high: the economy is operating with less slack than initially thought, and the speed of the disinflation process is slow and will likely remain so—especially that of core services.”