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COLOMBIA: Itaú Believes BanRep Inclined To Accelerate To 75bp Cut This Month

COLOMBIA
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  • After the divided 50bp cut in September, Itaú believes the Board will be inclined to accelerate to 75bp in October, while CPI and inflation expectations will remain key. They expect the market to converge to a 75bp rate cut in October, barring large unfavourable data surprises and continue to expect a year-end rate of 8.75%, although they cannot rule out the board opting to stick to the 50bp pace, if there is a further spike in fiscal noise and unfavourable inflation developments.
  • Itaú says that the food price impact of the transport strike has faded. They estimate headline inflation to rise by 0.28% m/m in September, corresponding to 5.85% y/y (data released later at 0000BST/1900ET). Going forward, they expect the disinflationary process will be partially countered by stronger FX pass-through pressures. They still see year-end inflation at 5.6%, but raise their end-2025 forecast by 10bp to 3.6%.
  • Discussions related to the fiscal accounts are becoming even noisier. Persistently lower-than-expected tax revenues and the administration’s inability to reach an agreement in Congress on the 2025 Budget reflect rising fiscal risks. Itaú expects an elevated fiscal deficit of 5.6% of GDP this year, but they have revised their end-2025 call upward by 40bp, to 5.5%, in light of an ambitious tax revenue target.
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  • After the divided 50bp cut in September, Itaú believes the Board will be inclined to accelerate to 75bp in October, while CPI and inflation expectations will remain key. They expect the market to converge to a 75bp rate cut in October, barring large unfavourable data surprises and continue to expect a year-end rate of 8.75%, although they cannot rule out the board opting to stick to the 50bp pace, if there is a further spike in fiscal noise and unfavourable inflation developments.
  • Itaú says that the food price impact of the transport strike has faded. They estimate headline inflation to rise by 0.28% m/m in September, corresponding to 5.85% y/y (data released later at 0000BST/1900ET). Going forward, they expect the disinflationary process will be partially countered by stronger FX pass-through pressures. They still see year-end inflation at 5.6%, but raise their end-2025 forecast by 10bp to 3.6%.
  • Discussions related to the fiscal accounts are becoming even noisier. Persistently lower-than-expected tax revenues and the administration’s inability to reach an agreement in Congress on the 2025 Budget reflect rising fiscal risks. Itaú expects an elevated fiscal deficit of 5.6% of GDP this year, but they have revised their end-2025 call upward by 40bp, to 5.5%, in light of an ambitious tax revenue target.