Colombia's BanRep To Pause After One More Rate Hike

• At its board meeting on March 30, BanRep of Colombia raised its policy interest rate by 25 basis points to 13.00%, which was in line with Fitch's and general expectations.
• The vote was unanimous among all seven board members. The preliminary press release from the meeting cited easing food and drinks price inflation (24.1%) y-o-y in February compared to 27.8% in December 2022, as well as improving inflation expectations among economic analysts surveyed by BanRep as the reason for the more moderate rate hike, despite accelerating core inflation.
• Additionally, BanRep Governor Leonardo Villar stated that he expects the global banking crisis will have a limited effect, if any at all, on the Colombian economy.
• Given these reasons, Fitch Solutions expects that BanRep will begin to loosen policy in H223 in an effort to support growth once more evidence emerges that inflation has peaked, with the rate ending 2023 at 12.25%.
• However, risks to Fitch’s interest rate forecast are skewed more to the downside, with lower-than-expected growth posing the most significant downside risk. If economic headwinds cause Colombian GDP growth to underperform, this would not only likely cause inflation to subside faster than expected but would also pressure BanRep to cut rates in the latter half of the year in order to support economic growth.

(Source: Fitch Solutions)