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BanRep Minutes Published, Larger Cuts In Coming Months

COLOMBIA
  • Overnight, the Colombian central bank published the minutes of the January meeting where the overnight lending rate was cut by 25bps to 12.75%. Link to minutes is here.
  • Notably, the five-member voting majority highlighted the potential erosion of credibility in the target, the still high level of inflation and that not all inflation expectations are consistent with the central bank’s goals over the policy horizon.
    • They agreed these factors should prompt monetary policy to be “especially cautious”, while maintaining the expectation of being able to accommodate larger reductions in the policy interest rate in the coming months, as the current sources of uncertainty dissipate.
  • The two dovish dissenters indicated that contractionary policy has been producing the required macroeconomic adjustment, as shown by the brake on aggregate demand at levels compatible with productive capacity, resulting from the slowdown in consumption and the sharp drop in investment.
    • A substantial reduction in the policy rate would contribute decisively through relief in financing costs, one of the crucial factors in making investment decisions. They consider the smaller cut as delaying the growth stimulus urgently required, causing unnecessary costs to the economy.
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