BanRep Holds Rates But Poised to Start Tempered Policy Loosening in October

• In line with expectations, Colombia’s Banco de la República (BanRep) decided to hold rates at 13.25% for a third time at its September meeting in a five to two vote.
• In his remarks, the Governor of the Board of Directors, Leonardo Villar, stated that members broadly did not think that the conditions were sound to start loosening policy, given that headline and core inflation remain elevated at 11.4% y-o-y and 9.9% in August, respectively.
• In addition, unemployment surprised to the downside, falling to 9.3% in August, the lowest reading for the month since 2018, signalling that rate tightening has not sufficiently slowed the economy to bring inflation under control.
• Given these factors, Fitch Solutions believes that BanRep is likely to start its rate-cutting cycle in October; if inflation continues to ease in line with its expectations. This underpins Fitch’s interest forecasts of 12.75% by end-2023 and 9.25% by end-2024.
• That said, risks are skewed heavily to the upside: If inflation remains hot, BanRep is likely to delay their rate cuts to December or even to 2024. Additionally, risks to Fitch’s 2024 inflation forecast are also elevated, especially in H124, when the El Niño phenomenon could accelerate food and energy inflation.

(Source: Fitch Solutions)