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Colombia Monetary Policy January 2024

Colombia: Central Bank cuts rates further in January

At its 31 January meeting, the Board of Directors of the Central Bank of Colombia (BanRep) delivered another 25 basis point cut, bringing the benchmark interest rate down to 12.75%. The decision, which followed December’s same-sized cut, was not unanimous: Two of the seven Board members preferred a 50 basis point reduction. Similarly, markets had priced in a larger cut.

The move was driven by headline inflation’s continued moderation through December from its peak in March 2023. Similarly, inflation expectations fell. Additionally, BanRep aimed to support the economy as it has penciled in a shallow 0.8% GDP expansion for 2024. That said, the Bank opted for a smaller-than-expected reduction as inflation remained over three times above BanRep’s 3.0% target.

BanRep’s communiqué was void of explicit forward guidance. That said, the Bank expects the cut to be consistent with headline inflation converging to target by H1 2025. BanRep acknowledged, however, that risks to the inflationary outlook remain skewed to the upside and include the higher-than-anticipated recent 12% minimum wage increase and the impact of the El Niño weather pattern on commodity prices, especially for agricultural commodities.

All of our panelists see further monetary easing this year, although the spread is wide: Between 275–575 basis points worth of additional cuts have been penciled in. The Bank’s next meeting is scheduled for 22 March.

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