MNI Colombia Central Bank Preview - March 2024: Easing Pace Likely To Be Accelerated

Executive Summary

• Analysts expect the central bank to accelerate the pace of rate cuts this week, with a majority looking for a 50bp move to 12.25% and risks skewed towards a slightly larger cut.
• A further decline of inflation and inflation expectations means that real rates have risen since the last meeting, which along with weak activity supports the case for a larger rate move.
• The continued divergence of views among the committee, however, means that the decision is unlikely to be unanimous.

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MNI Colombia Central Bank Preview - March 2024.pdf

Divergence Of Views On Committee Points To Another Split Vote

Since the last MPC meeting in January there has been further substantial debate among the committee regarding the outlook for interest rates with some members opening the door to a possible acceleration of the easing cycle. Finance Minister Bonilla, in particular, has continued to strike a dovish tone, highlighting the need for interest rates to support economic growth. He said that Colombia will grow at a low rate this year and that more needs to be done to boost growth with investment in housing and civil works, adding that long-term GDP growth of 4% is insufficient for the country’s needs. On several occasions he has reiterated his view that BanRep should cut by at least 50bp in March, adding that the debate will be whether to move by 50bp, 75bp or 100bp. In an interview with El Tiempo last weekend, he said that he would cut interest rates by 100bp this week to help spur the economy.

Similarly, BanRep co-director Bibiana Taboada has also said in the last week that slowing inflation and a weak economy call for more aggressive interest rate cuts. She noted that the fall of inflation since the last meeting to a near two-year low allows for the possibility of having cuts of a slightly larger size, while noting that policymakers must remain vigilant to potential risks ahead.

By contrast, Governor Villar has continued to strike a more guarded tone, noting that policymakers must be careful about a rebound in inflation and should be cautious about the pace of rate cuts. In particular, he has highlighted that inflation remains far from target and that BanRep should take care with stepping up the pace of easing as it could increase inflation risks and make the cutting cycle unsustainable. He also said that rapid cuts could trigger outflows and risk weakening the peso. With these range of views persisting, another split vote on the rate decision seems likely.