The central bank of Colombia (BanRep) accelerated cuts to 50bp (from 25bp), bringing the policy rate to 12.25%. The decision was in line with economists’ consensus expectations, according to Bloomberg. Market pricing had about 55bp of cuts priced in (50bp cut with a 20% residual probability of a 75bp cut). The board votes were more split, with five members voting for a 50bp cut and two dovish votes. One was for a 75bp cut and one for a 100bp cut, likely from Olga Lucia Acosta Navarro and FinMin Bonilla, respectively (for more on hawk/dove splits in LatAm see here). Pricing beyond today’s meeting was more anchored to 50bp and residuals pricing 50% probabilities to accelerate to 75bp in the coming meetings, but this vote split could open the door to 75bp cuts at upcoming meetings and then perhaps some residual probability of a 100bp cut after the next meeting. This is likely to drive some marginal COP weakness amid the lower repricing of front-end rates and the terminal rate. The commentary from Villar suggested further rate cuts, but cautiously noted that inflation expectations are still above expectations. We expect another gradual acceleration in the upcoming meeting to 75bp.
For more, including views on FX and local rates as well as accompanying charts, see full note.