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A cautious rate cut path is justified.
2024/03/22 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo


In a divided decision, BanRep increased the pace of rate cuts from 25bp to 50bp, taking the policy rate to 12.25%, as expected. The two dissenting votes favored a 75bp and 100bp cut. The Board has now cut 100bps since starting the cycle in December. According to guidance in the press conference, the easing cycle continues as inflation and inflation expectations fall, consistent with taking inflation to the 3% target by mid-2025. Upcoming decisions will be data-dependent. Following the decision, the one-year ex-ante real rate stands at 7.60%, well above the neutral rate of 2.4%.


Inflation revised down for 2024.  The technical staff revised their yearend CPI call down by 50bps to 5.4%, and expect inflation to return to 3% by mid-2025. The updated estimates incorporate adjustments to diesel prices. Villar highlighted that CPI expectations have continued to decline, while headline and core inflation continued falling in February, despite the persistence of services CPI. Minister Bonilla highlighted how inflation risks from El Niño have moderated.


The technical staff expects 1.1% growth in 2024 (0.8% previously), likely due to less demanding base effects (0.6% in 2023). Villar highlighted the domestic demand contraction of 3.8% in 2023. As a result, the current account deficit narrowed significantly to 2.7% of GDP in 2023 (6.2% of GDP in 2022), making the economy less vulnerable to external shocks. On the other hand, Minister Bonilla highlighted the importance of reducing interest rates to support the economic recovery. Governor Villar affirmed that one of the reasons for accelerating the pace of cuts is to stimulate the economy, since the positive output gap has closed.


The disinflationary process has continued through 2024, but inflation remains well above the target, justifying a cautious rate cut path. While risks from El Niño and diesel prices persist, the appreciated COP and weak domestic demand will consolidate the inflation convergence path. We expect the Board to continue with the 50bp rate cut pace in the next meetings. This meeting’s minutes will be released on April 1, and the next monetary policy meeting is scheduled for April 30.