Central Bank continues monetary easing in October

Cut meets market expectations: At its meeting on 31 October, the Board of Directors of the Central Bank of Colombia (Banrep) decided to reduce the policy interest rate by 50 basis points to 9.75%. The move, which mirrored September’s same-sized cut, had been largely priced in by markets and was once again not unanimous; three of the Board’s seven members preferred a 75 basis point cut.

Banrep aims to support the economy amid declining inflation: Banrep aimed to support the ongoing recovery in economic activity, likely motivated by Q2’s nearly stagnant quarterly GDP growth. A continued decrease in inflation and inflation expectations likely added extra impetus to the decision; price pressures fell to a near three-year low of 5.8% in September. That said, persistent upside inflationary risks stemming from a weakening currency likely dissuaded a larger-sized cut.

Further easing likely by end-2025: In its communiqué, Banrep provided no explicit forward guidance but underlined its commitment to “support the recovery of economic growth while maintaining the necessary prudence considering persistent risks to the inflation outlook”; the Bank’s main priority is to drive inflation towards its 3.0% target by 2025. That said, the Bank struck a more hawkish tone than in its last meeting, hinting that further monetary policy easing would hinge on the performance of the currency, which has recently come under strain amid a strong USD, declining oil prices and a rising fiscal shortfall in Colombia weighing on investor sentiment. Our Consensus is for a 75 basis point cut at the final meeting of 2024 on 20 December; our panel then expects Banrep to ease its stance by a further three percentage points next year.

Panelist insight: Scotiabank Colpatria analysts commented: “The next meeting will be on Friday, December 20; the split vote 4 vs 3 suggests there is a chance to accelerate the easing cycle. However, it will strongly depend on having a better clarity of the international scenario, the negotiation of the minimum salary, and fiscal initiatives. Our call remains for a 75 bps rate cut to close the year at 9%. The terminal […] rate is still estimated for now at 5.50%; however, if we observe a permanent shock in risk premiums, we could consider a moderate upside revision in the future.” Goldman Sachs’ Santiago Tellez was slightly more hawkish: “We maintain our base case of another 50bp cut in December on the back of today’s policy signals and our expectation of slow progress on core inflation, firmer growth in Q3, and lingering domestic risks, but we do not rule out a larger 75bp move given the slim hawkish majority.”

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