MNI BanRep Preview - Apr 2025: Seen On Hold In Close Decision

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Executive Summary

• BanRep is expected to keep its policy rate unchanged at 9.50% for a third consecutive meeting on Wednesday, amid heightened external uncertainties and ongoing fiscal challenges.
• The decision will be a close call, however, as recent soft economic activity data keep the door open to the possibility of a 25bp cut, which would satisfy President Petro’s demands for lower rates to support the economic recovery.
• As such, the decision is likely to be split again, after three Board members dissented with a vote for a 50bp cut at the previous meeting in March.

The April monetary policy meeting is likely to see another tight vote, as the Board remains split between a cautious majority that remains concerned about on-going inflation risks, and a minority of government-appointed members who are focused on supporting the economic recovery. Last month, that minority presented a consensus proposal for a 25bp cut, which they felt would signal support for the recovery, while maintaining the necessary caution. Despite expressing a desire to continue cutting rates, however, the majority group felt that current conditions did not allow for this and were concerned that a cut now could translate into inflationary pressures, potentially prompting a rate hike further ahead. Against this backdrop, the board was split 4-3, with the three dissenters ultimately voting for an even larger 50bp reduction.

Since that meeting, the external backdrop has deteriorated significantly, while on the domestic front, fiscal concerns have continued to increase. With the government seemingly reluctant to implement the necessary fiscal measures to rein in the fiscal deficit, the IMF recently announced that it had suspended Colombia’s flexible credit line (FCL). The Fund highlighted the lack of measures to reduce the public deficit and debt, which it noted have risen more than expected, and said that the government’s continued access to the FCL now depends on the approval of both the ongoing Article IV consultation as well as the subsequent mid-term FCL review. Given the worsening fiscal situation, analysts believe that the majority of the Board will remain cautious this week, while keeping the door open to further rate cuts ahead.