Colombia | Banco de la República cut its policy rate by 50bp to 12.25%.

Banco de la República reduced its policy rate by 50bp to 12.25%. With this, the Board of Banrep consolidates a 100bp cut since December when it started the process of rate reductions and accelerates the pace of cuts from 25bp to 50bp . Five Board members voted for 50bp cuts, one for 75bp and one for 100bp.

Key points

• Key points:
• At this meeting, the Board of Banrep accelerated its pace of rate cuts as expected. However, with the observed or expected reduction in inflation, the effects on the real interest rate are still modest and monetary policy remains contractionary.
• The Board is making monetary policy decisions trying to achieve a balance between the necessary reduction in the intervention rate and the remaining inflation. Inflation has already come down from its peak of 13.34% in March 2023 to 7.7% in February but the adjustment process to reach the inflation target range will extend until mid-2025. It is also true, as Banrep says, that the inflation reduction process is not free of upside risks, but the signs of a reduction are positive.
• However, at BBVA Research we believe that it is possible and necessary for the Board of Banrep to accelerate again the cycle of monthly cuts in the next meetings due to a mitigation of some inflationary risks and the slow growth of economic activity expected for the first half of 2024, but especially due to the slow recovery expected for 2025. The latter goes hand in hand with an economy that no longer shows excess demand.

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