Itaú BBA - COLOMBIA – Monetary Policy Meeting Minutes: Activity concerns led to a 50-bp rate cut

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COLOMBIA – Monetary Policy Meeting Minutes: Activity concerns led to a 50-bp rate cut

July 14, 2017

The board sees room to leave monetary policy less tight

The central bank’s June monetary policy meeting minutes show all board members agreed that activity is deteriorating by more than expected. Slowing credit growth was also flagged as an area of concern. There is also consensus that although inflation is falling, core measures remain above the range around the target. In this context, the board sees room to leave monetary policy less tight.

However, the board remains divided with this being the eighth consecutive split decision. The four-member majority that opted for a 50-bp rate cut thinks the activity deterioration and low growth expectations call for a faster stimulus. The term “faster stimulus” suggests that board members could share the same view on where the policy rate will end in the near term (consistent with recent communication from board members highlighted below). 

The minority group (three board members) in the board agreed that further lowering of the policy rate was necessary given the poor activity performance. However, the uncertainty from the technical staff over what interest rate path is consistent with achieving the 3% inflation target in 2018 supports the case for a more gradual approach (25-bp).

Although the minutes do not clearly indicate the tightening cycle is about to end, we expect the central bank to cut the policy rate twice more this year (25-bps in each of the next two meetings), in a context of low growth and sticky inflation. The central bank will likely make use of the “window of opportunity” provided by the base effects of inflation (as August CPI - to be published in September - will likely show a year-over-year acceleration). Our policy rate forecast for the end of this year (5.25%) is in line with the guidance recently provided by Governor Echavarría. Additionally, two of the board members most in favor of lowering the policy rate – finance minister Mauricio Cárdenas and José Antonio Ocampo – also recently noted there is a narrowing margin for further rate cuts.


Miguel Ricaurte

Vittorio Peretti


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