MNI Colombia CB Preview - Oct '25: Bar To Renewed Easing Rises
Executive Summary
- BanRep is expected to keep the overnight lending rate unchanged at 9.25% for a fourth consecutive meeting on Friday.
- The minutes to last month’s meeting suggested that the bar to renewed rate cuts has moved even higher, amid concerns over persistent inflation, uncertainty over the disinflation trajectory and the increase in the fiscal deficit.
- Furthermore, board member Villamizar has said that a rate hike might need to be considered. While this is not the base case yet, analysts have pushed their expectations for the next cut further out, to April 2026.
After leaving the policy rate unchanged in a split decision again last month, the majority of the BanRep board struck a cautious tone due to mounting concerns over the outlook for inflation, which is no longer seen returning to target next year. Speaking after the meeting, Governor Villar said that with the minimum wage set to rise above inflation next year, inflation was now only expected to return to target in 2027.
The subsequent minutes to that meeting pointed to risks of an extended rate hold ahead. The four members who voted to stay on hold said that there were “even more compelling reasons” than previously to keep the policy unchanged, including stagnant inflation, uncertainty over future disinflation and the increase in the fiscal deficit, which will boost domestic demand. They also cautioned on the possibility of an uncontrolled increase in the minimum wage and flagged concern about rising inflation expectations, while downplaying the benefit of recent FX strength.
