MNI Colombia CB Preview - Jun '25: Hold Seen, Vote Split Eyed
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Executive Summary
- After a surprise unanimous 25bp rate cut in April, the BanRep Board is expected to keep its policy rate unchanged at 9.25%, amid mounting fiscal concerns.
- This follows the government’s decision to suspend its fiscal rule earlier this month, which has increased the risk of a credit rating downgrade.
- That said, marginally softer CPI data and further peso gains since the last meeting keep the door open to further easing, and the vote is likely to be split, with some members calling for additional easing.
Since the surprise unanimous rate cut in April, the macro backdrop has become more challenging for the central bank, with inflation proving stickier than expected and the fiscal outlook deteriorating considerably. Speaking before the government’s recent decision to suspend its fiscal rule, Governor Villar said that fiscal pressures were complicating the task of hitting the inflation target, while BanRep co-director Acosta noted that the country’s large fiscal problem is something the board is very worried about. More recently, Villar acknowledged that the fiscal deficit and the activation of the fiscal rule’s escape clause is becoming increasingly important for the economy, stating that the fiscal surprises have changed the outlook.
Villar likely fell into the group of board members that initially favoured remaining on hold in April amid concerns about ongoing inflation risks. In contrast, the more dovish camp, likely including Finance Minister Avila and other government appointed members, initially favoured a larger cut amid concerns that an unchanged rate was not consistent with the progress made in reducing inflation and supporting economic growth. Given President Petro’s ongoing calls for rate cuts to support the economic recovery, this camp is likely to continue to push for further easing this week, notwithstanding the deteriorating fiscal backdrop, potentially paving the way for a renewed vote split.
