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Itaú Expect Gradual Monetary Easing To Continue

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  • Itaú note that although base effects should contribute to the disinflationary process, risks related to the lagged effect of El Niño, the adjustment of diesel prices, and weaker COP dynamics persist. Monetary policy remains highly contractionary, but elevated global uncertainty associated with the Fed’s repricing and geopolitical tensions could limit more aggressive cuts in the short term.
  • Amid tighter global financial conditions, Itaú expect BanRep to maintain a cautious stance. They see it continuing with a 50bp cut at the next monetary policy meeting in June. Downside surprises in inflation dynamics and a convergence of inflation expectations would play a key role in allowing for an acceleration in the cutting pace.
  • For now, they maintain their forecast for an 8.75% year-end rate, still well above the nominal neutral rate of around 5.5% and the analysts survey of 8.25%, and more consistent with the central bank’s signalling. For YE25, they estimate a rate of 6% on expectations of a slow pace of easing by the Fed.
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  • Itaú note that although base effects should contribute to the disinflationary process, risks related to the lagged effect of El Niño, the adjustment of diesel prices, and weaker COP dynamics persist. Monetary policy remains highly contractionary, but elevated global uncertainty associated with the Fed’s repricing and geopolitical tensions could limit more aggressive cuts in the short term.
  • Amid tighter global financial conditions, Itaú expect BanRep to maintain a cautious stance. They see it continuing with a 50bp cut at the next monetary policy meeting in June. Downside surprises in inflation dynamics and a convergence of inflation expectations would play a key role in allowing for an acceleration in the cutting pace.
  • For now, they maintain their forecast for an 8.75% year-end rate, still well above the nominal neutral rate of around 5.5% and the analysts survey of 8.25%, and more consistent with the central bank’s signalling. For YE25, they estimate a rate of 6% on expectations of a slow pace of easing by the Fed.