BanRep voted to cut the policy rate by 25bp to 9.25% in an uncommon unanimous decision. The cut was not priced in by markets and was contrary to consensus expectations and the messaging around the IMF/World Bank meetings last week. In the press conference, Governor Villar noted that the rate decision was justified by lower inflation and break even expectations (even though BanRep’s survey saw inflation expectations increase, see our CPI chart pack for more on inflation). The FX pass-through also seemed less of a concern, as the COP had stabilised recently, while the bank is “optimistic” on the government’s plans. Villar did stress that monetary policy was - and needed to continue to be - contractionary. However, the surprise cut is likely to back steepeners and long USDCOP positions.
For more, including market takeaways, please see full note.