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COLOMBIA: Scotiabank Believes BanRep Independence Will Prevail

COLOMBIA
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  • On the back of recent data and the 9.5% minimum wage hike, Scotiabank now estimates that headline inflation will end 2025 at 4.5% y/y, up from their previous 3.9% forecast. They also consider the possibility of a pause in BanRep’s easing cycle on January 31, with the policy rate ending the year at 7.75%, up from their previous 6.75% forecast.
  • Meanwhile, following President Petro’s appointment of two new board members last week, the government now has four out of seven seats on BanRep’s board. Although this would favour a dovish tilt in the board, Scotia believes that the independence of the central bank will prevail. They note that Olga Lucia Acosta, a Petro appointee, split from the Finance Minster’s call for a larger rate cut in December, suggesting that a dovish coalition could still be far from reality.
  • Scotia believes that the economy will continue on a gradual recovery in 2025, driven by a rebounding private sector, as public spending remains constrained by limited tax revenue. They expect a gradual recovery in personal consumption, but see investment activity remaining below pre-pandemic levels. Meanwhile they expect a moderate increase in the trade deficit, amid broadly steady exports and a continued recovery in imports.
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  • On the back of recent data and the 9.5% minimum wage hike, Scotiabank now estimates that headline inflation will end 2025 at 4.5% y/y, up from their previous 3.9% forecast. They also consider the possibility of a pause in BanRep’s easing cycle on January 31, with the policy rate ending the year at 7.75%, up from their previous 6.75% forecast.
  • Meanwhile, following President Petro’s appointment of two new board members last week, the government now has four out of seven seats on BanRep’s board. Although this would favour a dovish tilt in the board, Scotia believes that the independence of the central bank will prevail. They note that Olga Lucia Acosta, a Petro appointee, split from the Finance Minster’s call for a larger rate cut in December, suggesting that a dovish coalition could still be far from reality.
  • Scotia believes that the economy will continue on a gradual recovery in 2025, driven by a rebounding private sector, as public spending remains constrained by limited tax revenue. They expect a gradual recovery in personal consumption, but see investment activity remaining below pre-pandemic levels. Meanwhile they expect a moderate increase in the trade deficit, amid broadly steady exports and a continued recovery in imports.