Colombia: Central Bank hold rates in January
Bank unexpectedly pauses its loosening cycle: At its meeting on 31 January, the board of directors of the Central Bank of Colombia (Banrep) decided to maintain its policy rate at 9.50%. As a result, Banrep paused its monetary policy easing cycle—which has seen a cumulative 375 basis points of cuts since December 2023—defying market expectations of a 25 basis points cut. Once again, the move was not unanimous; one of the board’s seven members preferred a 25 basis points reduction, while another voted for a 50 basis points cut.
Economic recovery takes a back seat amid rising inflationary pressures: The Bank shifted its focus from previous meetings: Rather than aiming to stimulate economic activity, Banrep sought to tackle rising inflationary pressures. Inflation remained stubbornly above the upper bound of the official 2.0–4.0% target at the tail end of 2024, and future disinflation faces risks arising from accelerating producer price inflation, a recent minimum wage hike, and rising inflation expectations amid mounting fiscal challenges and exchange rate volatility. The Banrep also highlighted inflationary risks associated with U.S. trade, energy and migration policies under President Trump. Still, the Bank downgraded its 2025 GDP growth forecast from 2.9% to 2.6%, likely dissuading it from tightening its monetary policy stance.
Easing cycle should continue, but upside risks loom: In its communiqué, the Bank maintained a hawkish tone, stating that it would maintain a wait-and-see approach and assess “the magnitude and speed” of monetary easing ahead.
Our panelists pencil in a cumulative reduction of around 250 basis points for 2025. That said, given the unexpected nature of the Bank’s decisions in December and January, our analysts could raise their end-2025 interest rate forecasts in the coming months. A further deterioration in the country’s fiscal metrics is an upside risk to rates, while the size and timing of U.S. tariffs under President Trump plus government interference in monetary policy are factors to watch.
The Bank will reconvene on 31 March.
Panelist insight: Goldman Sachs’ Santiago Tellez commented:
“Although our base case was for a 25bp cut, we acknowledged the possibility of a wait-and-see hold. In all, today’s policy signals leave our policy rate views unchanged. Given our expectation of further disinflation gains, stable medium- and long-term inflation expectations, a negative output gap, and a still restrictive stance, we see room for the policy rate to decline gradually but steadily during 2025.”
Analysts at Itaú Unibanco said:
“In our view, the January decision was a coin toss between a mild cut or pausing. Fallout from tensions with the US and the final meeting of two of the more hawkish Board members probably were enough reasons to secure an on-hold majority. We expect rate cuts to resume in March (-25bps) with the Board’s makeup better reflecting the government’s stance. We cannot rule out a 50bp cut. We see an above consensus year-end rate at 8%.”