MNI BanRep Preview - Jan '25: Cautious Cut Seen, Risk Of Pause
Executive Summary
- With activity remaining weak, BanRep is expected to cut its policy rate by another 25bp to 9.25% on Friday.
- However, Finance Minister Guevara recently suggested that the central bank could pause its rate-cutting cycle this month, and elevated inflation pressures, a larger-than-expected minimum wage hike and ongoing fiscal risks, suggest that the debate could be between another 25bp cut and no change.
- Further ahead, the appointment of two new board members raises the prospect of a dovish shift in coming meetings.
Click to view the full preview: MNI Colombia Central Bank Preview - January 2025.pdf
BanRep struck a more hawkish tone in December, surprising the market as it slowed the easing pace to 25bp amid concerns over the inflation outlook and on-going fiscal risks. While inflation was still seen converging to target, it is now expected to do so more slowly, due to the pass-through from recent exchange rate pressures. Activity and inflation data since then have been consistent with the continuation of the cautious cutting cycle. But with annual CPI measures still above target and a larger-than-expected minimum wage hike, BanRep has little room to reaccelerate the easing pace at this juncture. Indeed, uncertainties over the external backdrop, following the recent political spat with the US and associated risks for the peso, mean that the debate is more likely to be between the possibility of another 25bp cut and no change this week.