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Tighter global financial conditions prevent a larger cut

In a divided decision, BanRep expectedly cut the policy rate by another 50bps to 11.75%. In a repeat of the March meeting, there were two dissenting votes, vying once more for a 75bp and 100 bp cut. Following the decision, the one-year ex-ante real rate stands at 7.12%, well above the 2.4% real neutral rate while marginally down from the cycle peak of 7.6%. The communiqué highlighted the consolidation of the downward inflation trend, while noting the broadly stable and above target inflation outlook in the market. On the activity front, the technical staff revised the 2024 GDP growth call up by 30bps to 1.4%, and down 30bps to 3.2% for next year. Overall, Governor Villar highlighted the tightening of global financial conditions, and signaled upcoming decisions would be data dependent and coherent with ensuring inflation returns to the 3% target by mid-2025.


Tighter global financial conditions prevent a larger cut. Governor Villar emphasized the consensus within the board to lower rates, but global developments favor a cautious approach. The 50bp cut also had the benefit of being priced in by the market.  Governor Villar did not rule out accelerating the cycle if macroeconomic conditions permitted.


The technical staff estimates that the output gap is negative. Hence, the upside revisions to the GDP growth outlook do not bring added inflationary pressure. The upward revision is due to better-than-expected performance of some primary and tertiary sectors so far this year.


Our take: Although inflation has continued to fall throughout the year, it remains well above the target, which together with tighter global financial conditions, justifies maintaining a cautious stance. Future diesel price adjustments and weaker COP dynamics, could slow down the disinflationary process, but the overall domestic demand weakness will consolidate the inflation convergence process. We expect the board to continue with the 50bp rate cut pace at the next meeting (June 28), and see a yearend rate of 8.75% (but risks tilt to the upside). On Friday, the central bank will publish their quarterly monetary policy report, while the March meeting’s minutes will be released on May 6.


Andrés Pérez M.

Vittorio Peretti  

Carolina Monzón

Juan Robayo