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Goldman Sachs on BanRep Minutes Released Overnight

COLOMBIA
  • The minutes from the December 17 MPC meeting show that all MPC members believe that withdrawing the monetary stimulus is warranted given the increases in current and expected inflation and the vigorous growth momentum (narrowing of the output gap).
  • Four of the seven MPC members advocated increasing the policy rate by 50bp to 3.00%. The four directors considered that, although the higher current and expected inflation and strong growth justify continuing with the withdrawal of the monetary stimulus, they do not believe that it is convenient to accelerate the pace of adjustment and favor not surprising the market.
  • In turn, three dissenting directors voted to increase the policy rate more aggressively with a bolder 75bp. The three hawkish directors expressed concerns not only about the higher than expected and accelerating inflation and the deteriorating inflation expectations, but also about structural factors such as the inability of supply to meet the higher demand. Furthermore, the three dissenting directors argued that the recent increase in the minimum wage, above what could be justified by realized inflation and productivity gains, could contribute to the de-anchoring of inflation expectations.
  • In their assessment the MPC will continue to normalize policy in the coming meetings, with the monetary policy crossing its neutral level to reach a slightly restrictive monetary stance next year (policy rate at 5.50% by end-2022).
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