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COLOMBIA: Deutsche Bank Still Expects 25bp BanRep Cut, Despite CPI Surprise

COLOMBIA
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  • Despite the upside surprise and ensuing uptick of headline inflation in February, Deutsche Bank still expects BanRep to cut its policy rate by 25bp at its March 31 meeting on the back of the tight monetary stance, the supportive behaviour of core inflation (in particular services), and the dovish tilt that a new Board’s majority will likely adopt amid heightened recession risks globally.
  • Nevertheless, they acknowledge the risks that further upwards updrift of inflation expectations, the increased external financial volatility, lingering concerns over Colombia’s fiscal outlook, and intensifying headwinds to the economy’s external position due to the decline in oil prices may prod BanRep to keep monetary conditions steady.
  • DB expects that the slide of annual headline and core inflation will resume in the coming months, with the former likely falling below 5% in Q2, but stalling thereafter. The convergence of inflation to the target range will likely remain elusive for this year, at least. DB estimates that headline and core inflation will close 2025 at 4.9% and 4.1%, respectively.
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  • Despite the upside surprise and ensuing uptick of headline inflation in February, Deutsche Bank still expects BanRep to cut its policy rate by 25bp at its March 31 meeting on the back of the tight monetary stance, the supportive behaviour of core inflation (in particular services), and the dovish tilt that a new Board’s majority will likely adopt amid heightened recession risks globally.
  • Nevertheless, they acknowledge the risks that further upwards updrift of inflation expectations, the increased external financial volatility, lingering concerns over Colombia’s fiscal outlook, and intensifying headwinds to the economy’s external position due to the decline in oil prices may prod BanRep to keep monetary conditions steady.
  • DB expects that the slide of annual headline and core inflation will resume in the coming months, with the former likely falling below 5% in Q2, but stalling thereafter. The convergence of inflation to the target range will likely remain elusive for this year, at least. DB estimates that headline and core inflation will close 2025 at 4.9% and 4.1%, respectively.