Colombia | BanRep kept its policy rate unchanged at 13.25%. With a split vote

Summary

BanRep kept its rate unchanged with a split vote. They argue that inflation, still high, activity around trend, and positive labor market figures, allow to keep the policy in its current stance. We believe that the first rate cut will be in December.

Key points

• Key points:
• Banco de la República maintained its policy rate stable in a split decision (5 to 2) for the second consecutive meeting.
• Inflation, although it continues to moderate, does so at a slow pace and is still at high levels. In particular, services and regulated inflation are showing greater persistence. At the same time, it should be noted that inflation expectations have increased in different terms.
• The Staff revised upward the economy's growth projection for 2023 to 1.2% (from 0.9% a quarter ago). This revision is part of a cycle of slowing economic activity from high levels, which leads the Central Bank to observe that activity is close to its potential level.
• The global environment remains a major concern for the Bank's Board, especially due to recent geopolitical and financial tensions. However, they highlight that the important correction in the current account deficit reduces, at least partially, the vulnerability of the Colombian economy on this front. They added that they expect an external deficit at the end of this year of around 3.4%.
• We believe that, in spite of maintaining the same balance in the voting, the debate within the Board was more marked on this occasion, which allows us to confirm our position of starting the cycle of rate reductions for the month of December of this year.

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