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Economists Survey Raises 2021 CPI Forecast To 4.9%

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  • The cycle is likely to begin with a 25bp increase of the reference rate to 2.00%. Several of the seven members of the board have already signalled their inclination to begin hiking rates in Colombia after a 5-2 split vote in the previous meeting that resulted in the reference rate remaining on hold.
  • However, after the last meeting inflation has continued to rise reaching 4.4% y/y in August which is well above Banrep's 1pp tolerance range around its 3% target. And while core inflation remains within Banrep's tolerance range, we think the Fed's more hawkish stance together with the still-improving growth outlook for Colombia will warrant the start of the cycle.
  • While DB do not rule out a 50bp increase of the reference rate, they do not see the need for Banrep to adopt such a hawkish stance. Inflation expectations remain stable and inflationary pressures are still contained which, in their view, makes the adoption of a higher-than-expected hike unnecessary.
  • However, they will be keeping a close eye on the tone of the statement as it is likely to provide useful information regarding the pace of the cycle that is set to begin. We expect the intervention rate to end the year at 2.50%.