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COLOMBIA: SocGen Expects 25bp Easing Pace To Be Maintained, Risks Tilted To 50bp

COLOMBIA
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  • SocGen believes that with uncertainties over the Fed’s rates outlook persisting, BanRep should follow its 25bp easing pace. However, the risk is probably tilted towards the possibility that the central bank might consider going back to 50bp rate cuts, given the renewed growth pressure. SocGen now sees the end-2025 and end-2026 policy rate at 7.5% and 6.0%, respectively, with risks mostly towards the downside.
  • Recent inflation numbers have been mixed and have limited the scope for maintaining the easing pace. While the disinflation process has continued, m/m changes in prices have surprised to the upside and the inflation expectations are slowing at a more sluggish pace than earlier last year. The central bank’s projections show a much slower convergence of inflation to its target than expected earlier.
  • The weak economy is a concern too. Trade and other global uncertainties are likely to persist, while Q4 GDP is likely to contract on a sequential basis, suggesting that the negative output gap probably widened further. At the same time, the fiscal backdrop remains worrisome, which could continue to be a source of pressure on the currency and inflation outlook.
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  • SocGen believes that with uncertainties over the Fed’s rates outlook persisting, BanRep should follow its 25bp easing pace. However, the risk is probably tilted towards the possibility that the central bank might consider going back to 50bp rate cuts, given the renewed growth pressure. SocGen now sees the end-2025 and end-2026 policy rate at 7.5% and 6.0%, respectively, with risks mostly towards the downside.
  • Recent inflation numbers have been mixed and have limited the scope for maintaining the easing pace. While the disinflation process has continued, m/m changes in prices have surprised to the upside and the inflation expectations are slowing at a more sluggish pace than earlier last year. The central bank’s projections show a much slower convergence of inflation to its target than expected earlier.
  • The weak economy is a concern too. Trade and other global uncertainties are likely to persist, while Q4 GDP is likely to contract on a sequential basis, suggesting that the negative output gap probably widened further. At the same time, the fiscal backdrop remains worrisome, which could continue to be a source of pressure on the currency and inflation outlook.