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The tightening cycle is close to concluding.

Joao Pedro Resende, Andrés Pérez M., Vittorio Peretti & Carolina Monzón


The Central Bank’s board delivered a 75bp rate hike to 12.75%, in line with our expectation but below the 13% Bloomberg consensus and down from the 100bp hiking pace in the previous three meetings. The split vote saw five board members in favor of the majority decision, while two opted for a 25bp hike. In December, the Board was missing one member, and split 5-1 (100bps-25bps). The press release announcing the decision today highlighted the upside inflation surprise, a strong indexation process, the pass through from the weaker Colombian peso to prices and still elevated economic activity. Following the hike, the one-year ex-ante real rate increased to 5.0% (using the monthly analyst survey; +50bps from the previous meeting). At the press conferenceand in the statement, General Manager Villar noted that monetary policy is close to the end of the cycle while the pace of future monetary policy adjustments will be data-dependent.

Still resilient economic activity in 2022, but a deeper slowdown in 2023. The technical staff maintained its 2022 GDP growth forecast at 8.0% (Itaú: 8.2%; 10.7% in 2021). For 2023, the staff revised GDP growth forecast down by 30bps to 0.2% (Itaú: 0.6%), hindered by tighter financial conditions and the slowdown of the global economy.

Inflation expectations remained elevated. With rising inflation (up 59bps to 13.1% in December), inflation expectations from surveys remained high. The two-year inflation outlook was broadly stable at 4.5% (3% target), while two-year core inflation expectation ticked up 8pbs to 3.95%. According to the press release, global inflation has slowed as a result of the monetary policy adjustment process, the mitigation of supply shocks on transport costs and a moderation in food and energy prices. Villar indicated inflation would close 2023 between 8.0% and 8.5% (7.1% estimated in November).

The Board returned to full capacity. After six of the seven members met in December, Olga Lucía Acosta was officially appointed as a board member yesterday, and participated in the meeting, replacing Alberto Carrasquilla after his dismissal by the State’s Council.

The tightening cycle is close to concluding, with incoming data determining the terminal rate. We expect a 50bp increase to 13.25% at the next monetary policy meeting (March 31). Significant inflation persistence would prevent early rate cuts. We see rates ending this year at 10.5%. The Monetary Policy Report to be released on Monday and meeting minutes on Tuesday should provide further insights on the policy rate path going forward.

Joao Pedro Resende
Andrés Pérez M.
​​​​​​​Vittorio Peretti 
Carolina Monzón