Colombia’s Central Bank Continues Cutting but Increased Caution

• In line with Fitch Solutions’ and consensus expectations, Colombia’s central bank, BanRep, decided to cut rates by 50bps to 11.25% at its latest June 28 meeting in a 4-to-2 vote (one absence). Further, Fitch anticipates that BanRep will cut by another 50bps in July.
• In the meeting announcement, the Board of Governors noted that 12-month inflation expectations continued their downward trajectory from 4.6% y-o-y in April to 4.3% in May, which bodes well for further cuts at the next meeting.
• Given this, Fitch is maintaining its forecast that the central bank will lower rates to 8.75% by the end of the year. However, the agency increased its end-of-year inflation forecast from 4.9% y-o-y to 5.2%, as the decline in price pressures begin to moderate in H2 2024.
• Risks to the interest rate outlook are skewed firmly to there being fewer cuts through 2024, implying higher rates in 2025, as more resilient growth could keep demand-side pressures elevated, resulting in hotter, above-target headline inflation for longer.

(Source: Fitch Solutions)