MNI BanRep Preview – Dec 2024: Cautious Easing Pace to Prevail
Executive Summary
- BanRep is expected to continue its gradual pace of easing, cutting the policy rate by another 50bp to 9.25%.
- Heightened fiscal concerns and COP weakness across H2 threaten to derail the disinflation process, dispelling the chance to increase the easing pace.
- Indeed, calls for bolder policy easing had been spearheaded by the now ex-finance minister Ricardo Bonilla, who is expected to be replaced on the BanRep board by his successor Diego Guevara.
Click to view the full preview: MNI Colombia Central Bank Preview - Dec 2024.pdf
Uncertainty over the fiscal outlook continues to weigh on policymakers, amid concerns that ongoing fiscal pressures and associated FX weakness could disrupt the disinflation process. Speaking earlier this month, BanRep Governor Villar said that the recent approval of the de-centralisation bill makes the fiscal outlook more challenging, although he said that the central bank will continue to cut interest rates at a gradual pace.
Villar’s comments came after the lower house of Congress approved the bill, which will increase transfers to the regional authorities to 39.5% of central government revenue by 2039. Amid concerns about the potential fiscal impact of the bill, Interior Minister Juan Fernando Cristo said that the transfer of fiscal revenue must be in line with the country’s fiscal sustainability and the government’s fiscal rule. Congress will now discuss another bill that will make clear what responsibilities the central government will transfer to the regions, to limit the fiscal costs of the constitutional reform and allow for the reallocation of expenditures.