MNI BanRep Preview – Sep 2024: Further Gradual Easing Expected
Executive Summary
- The September monetary policy decision will be a close call as the committee weighs stepping up the easing pace, but on balance most analysts expect it to deliver another 50bp cut in the overnight rate to 10.25%.
- While falling inflation and the Fed’s bold start to its easing cycle provide the central bank with some room to deliver a larger cut, on-going fiscal risks and concerns about the currency may prompt a more cautious approach.
- The vote is likely to be split once again, however, as Finance Minister Bonilla continues to argue for a faster pace of easing.
Click to view the full preview: MNI Colombia Central Bank Preview - September 2024.pdf
Recent comments from BanRep board members suggest that another split vote is likely this month, as policymakers weigh whether to step up the easing pace to 75bp or continue at the recent 50bp rate. Despite the inflationary impact of the recent diesel price hike and truckers strike, Finance Minister Bonilla has continued to argue for a larger 75bp move, saying that he expects 75bp cuts at each of the remaining meetings this year to 8.5% by year-end. Bonilla also said that he plans to implement change at the central bank, which he thinks has been too cautious in cutting rates, by bringing in young economists to freshen up the board when two new members are appointed by February 2025.
However, BanRep co-director Bibiana Taboada said recently that the risk of a sudden deterioration in the peso can’t be ruled out, which demands caution about monetary policy, even as she noted that the worst on inflation was over. Governor Villar also said last month that although inflation had decelerated, it had done so at a much slower pace than peers in the region, and that there was a consensus on the board around the benefits of being cautious to avoid halting the path of disinflation.