MNI Colombia Central Bank Preview - June 2024: Gradual Easing to Continue
The BanRep committee are expected to continue the easing cycle, cutting the overnight rate by 50bp to 11.25%
Executive Summary
- Analysts appear in agreement that BanRep will cut the overnight rate by 50bp to 11.25%, as core CPI inflation continues to decline, albeit in a gradual manner.
- The committee is expected to maintain a cautious/hawkish tone amid an increasingly challenging fiscal backdrop, COP depreciation, tight global financial conditions and above-target inflation expectations.
- Consistent rhetoric from Finance Minister Bonilla on the need for bolder easing strengthens the likelihood of another split vote.
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MNI Colombia Central Bank Preview - June 2024.pdf
Governor Villar Says It’s Difficult To Accelerate The Easing Pace
Since the last MPC meeting in April, BanRep Governor Villar has continued to strike a cautious tone, highlighting the need to cut interest rates further, but giving no indication of any willingness to accelerate the easing pace. Speaking at a banking conference earlier this month he said that the Bank’s board agrees on the benefit of lower rates but wants to proceed in a cautious manner that is conscious of inflationary effects.
This built on earlier remarks where he noted that it is difficult to accelerate the easing pace given inflation is well above its long-term target. He said that the central bank must be wary that any acceleration may reverse the pace at which inflation is slowing, adding that larger rate cuts could hinder future reductions in inflation and interest rates. Strengthening this narrative, there has been a sharp weakening of the Colombian peso since the April meeting. USDCOP is roughly 5% higher, driven by the strengthening greenback and a broader theme of carry position unwinds, exacerbated by the sharp MXN volatility in the aftermath of the June election.