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MNI Colombia Central Bank Preview - Oct 2021: Tightening Pace In The Balance

BanRep will continue their hiking cycle at their October meeting with the broad majority expecting another 25bp hike to 2.25%. However, due to the previous 4-3 split board vote and the ongoing upward pressure on headline CPI, the decision to accelerate the pace of hikes to 50bps hangs in the balance.

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Executive Summary:

  • BanRep will continue their hiking cycle at their October meeting with the broad majority expecting another 25bp hike to 2.25%.
  • However, due to the previous 4-3 split board vote and the ongoing upward pressure on headline CPI, the decision to accelerate the pace of hikes to 50bps hangs in the balance.
  • Arguments for a continuation at the initial 25bp increment focus on anchored core inflation and central bank rhetoric committed to a gradual approach.
  • This debate is also reflected in differing opinions among sell-side analysts.

Click to view the full preview: MNI Colombia Central Bank Preview - October 2021.pdf

Headline CPI Expectations Creep Further Above Target

Headline annual CPI rose to 4.51% in September versus an estimate of 4.49% and up from a prior reading of 4.44% Additionally, in the latest central bank survey, 12-month ahead CPI forecasts have continued to increase, highlighting a gradual de-anchoring of expectations from target. Combined with this acceleration, analysts note that higher energy prices as well as near-term base effects (low prints across Oct-Nov 2020) will likely keep upward pressure on the headline rate. For the dissenters at the September meeting, advocating for a 50bp hike, this may reiterate their viewpoint conveyed where they "signalled their uncertainty over how transitory or permanent the shocks to inflation will prove to be".

On the other hand, core CPI moderated slightly in September to 0.3% m/m versus an estimate of 0.32% keeping the annual ex-food figure close to the 3% target and the ex-food and energy figure also well below 3%.

MNI/Bloomberg