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BanRep Analyst Views - July 2023

COLOMBIA
  • **BBVA: Caution over inflation leads BBVA to confirm their expectation of a rate cut beginning in December, although if inflation surprises to the downside and the marked appreciation of the exchange rate persist, there would be some room to anticipate said start of rate cuts in October.
  • **Goldman Sachs: The statement was updated to reflect that the "[policy] decision […] is coherent with the goal of bringing inflation back towards its 3% target", which GS interpret as a somewhat dovish innovation relative to the prior message. In a press conference, Governor Villar refrained from setting a tentative date to kick off the normalization of the policy stance, but implied that if the broad macro-financial backdrop continues to improve, then a rate cut would be entertained at the September MPC meeting. GS assess that the signals from the communique and the press conference were dovish, and now view the September MPC meeting as a “live” meeting.
  • **JPMorgan: Core CPI is expected to start declining in July, which together with additional correction of food CPI and additional domestic demand moderation, should offer the BanRep the possibility of trimming the nominal policy rate in October. JPM maintain the call for a 75bp cut at that meeting. That said, a quicker deceleration of core CPI could open the door to September.
  • **Pantheon: Policymakers are in no rush to start cutting rates, even though credit conditions are deteriorating rapidly, domestic demand is falling, employment growth is slowing, and confidence is low. The Bank said that future decisions will be data-dependent, but Pantheon think inflation will fall rapidly over the next 3-6 months, thanks to the weakness of the economy, and the lagged effect of the COP’s rebound. BanRep will start to cut rates in October, if the COP remains under control, but risks to the inflation outlook remain tilted to the upside.
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