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COLOMBIA: Itaú Expects Cautious Rate Cuts To Resume In March

COLOMBIA
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  • Despite the changes in BanRep’s board, Itaú expects the cautious stance to continue, with a resumption of a 25bp cut in March, and a YE25 rate of 8%, well above the nominal neutral rate of 5.7%. BanRep continues to express concerns about the inflation dynamics, but the two new board members are likely to tilt the decisions toward gradual cuts. For 2026, Itaú continues to forecast a year-end rate of 6.5%. They see USDCOP at 4400 at year-end, amid high uncertainties surrounding domestic policy and narrowing interest rate differentials with the US.
  • Itaú expects the disinflationary process to slow this year. Potential gas price hikes this month could weigh on inflation, adding to a strong January print and indexation pressures from a larger-than-expected minimum wage increase. They now forecast a YE25 CPI of 4.5% (from 4.2% previously), but maintain their 2026 forecast at 3.3%.
  • On the fiscal front, Itaú says that achieving the 5.1% of GDP deficit target for 2025 seems challenging without an expenditure reduction of at least COP 40tn (2.4% of GDP) and the adoption of a new tax bill, amid high revenue estimates. They have revised their nominal fiscal deficit forecast up to 6.5% of GDP (from 5.5%) and to 4.8% for 2026 (from 4.5%). Higher-than-anticipated deficits are likely to weigh on the sovereign’s credit rating.
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  • Despite the changes in BanRep’s board, Itaú expects the cautious stance to continue, with a resumption of a 25bp cut in March, and a YE25 rate of 8%, well above the nominal neutral rate of 5.7%. BanRep continues to express concerns about the inflation dynamics, but the two new board members are likely to tilt the decisions toward gradual cuts. For 2026, Itaú continues to forecast a year-end rate of 6.5%. They see USDCOP at 4400 at year-end, amid high uncertainties surrounding domestic policy and narrowing interest rate differentials with the US.
  • Itaú expects the disinflationary process to slow this year. Potential gas price hikes this month could weigh on inflation, adding to a strong January print and indexation pressures from a larger-than-expected minimum wage increase. They now forecast a YE25 CPI of 4.5% (from 4.2% previously), but maintain their 2026 forecast at 3.3%.
  • On the fiscal front, Itaú says that achieving the 5.1% of GDP deficit target for 2025 seems challenging without an expenditure reduction of at least COP 40tn (2.4% of GDP) and the adoption of a new tax bill, amid high revenue estimates. They have revised their nominal fiscal deficit forecast up to 6.5% of GDP (from 5.5%) and to 4.8% for 2026 (from 4.5%). Higher-than-anticipated deficits are likely to weigh on the sovereign’s credit rating.