- The board affirmed the cautious approach, highlighting tightened international financial conditions.
The board of Colombia’s central bank (BanRep) cut the monetary policy rate by 50bps to 11.25% in a split vote, with four members voting for a 50bps cut and two members voting for 75bps. It is worth noting that in this meeting, board member Jaime Jaramillo, was absent. The board highlighted that the real rate remains contractionary and is compatible with achieving the inflation target by mid-2025. During the press conference, Governor Villar said that the board prefers not to provide forward guidance about future steps, but he said that an acceleration in the easing cycle will depend on a faster drop in the CPI inflation.
Today’s decision was expected, and the division of the votes suggests that the probability of an acceleration of the easing cycle at the July meeting has diminished. During the press conference, Governor Villar emphasized that the board prefers a predictable path and cautious approach to ensure convergence to the inflation target.
In today’s communique, BanRep’s board emphasized three topics: first, breakeven inflation remains above the central bank target until the end of 2025; second, economic activity is showing some recovery; and third, international financial conditions have tightened, leading to an increase in the risk premium in the FX. No major information was provided, which aligns with the preference to remain cautious.
All in all, we expect BanRep to continue carefully cutting rates. There is a low chance to have an acceleration at July’s meeting, and having said that we revise our expected rate for Dec-2024 from 8.25% to 8.50%. We still expect a terminal rate of 5.50% reaching this level in the second half of 2025.
Key points about June’s BanRep meeting:
- Governor Villar said that future decision will depend on Colombia’s macroeconomic conditions. In our opinion it discards the possibility of having a scenario of decelerating the easing cycle just following the Latin American style in recent meetings. Governor Villar said that for now Colombia’s real rate is less contractionary compared with regional peers, however it doesn’t mean that Colombia will follow the action of other central banks.
- Regarding FX: Despite recent volatility, Governor Villar discards the necessity of intervening in the FX market. On the other hand, despite not exercising the central bank’s put option in June, Governor Villar said that the program has accumulated USD 825mn in international reserves so far this year. This is good progress towards the target this year of increasing international reserves by around USD 1.5bn.
- The central bank welcomes the release of the Medium-Term Fiscal Framework. Governor Villar said that the MTFF-2024 shows consistency in the fiscal responsibility, which contributes to the adjustment of the economy but also to build confidence in Colombia’s ability to achieve better funding cost.
- The Finance Minister, Ricardo Bonilla said he decided to vote for a 75bps cut to tilt the decision towards a bigger rate cut. We think that this approach will continue in forthcoming meetings. However, we don’t expect enough consensus amongst board members to see an acceleration in the easing cycle in July.
- About pension reform, the Finance Minister said that they are expected to be implemented by July 2025, and regulation is pending. This regulation will be key to defining the role of the central bank in the management of the sovereign pension fund.
- Minutes will be released next Thursday after 5pm (local time).
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.