Analysts Predict Split Among Board Members
Colombia’s central bank board will convene for its final meeting of the year, faced with the decision of whether to implement cuts to its historically-high interest rate or wait for more information regarding potential inflationary trends. This seven-member board has faced division at its two most recent meetings, and analysts anticipate a similar scenario this time. Out of the 20 analysts surveyed by Reuters, 9 predict that the benchmark rate will remain at 13.25%, which is its highest level in 24 years. Additionally, 6 analysts expect a 25 basis points cut, while 5 forecast a 50 basis points reduction. If implemented, this would mark the first cut since September 2020. Scotiabank noted that a rate cut in December is still possible, although it cautioned that inflation risks and the unresolved minimum wage hike for next year might dissuade some policymakers from lowering borrowing costs.
Recent Economic Contractions and Inflation Concerns
This meeting follows the release of data from the country’s statistics agency, indicating a 0.41% year-on-year contraction of Colombia’s gross domestic product in October. This represents the third consecutive monthly contraction, raising concerns about the state of the economy. While November’s year-on-year inflation rate of 10.15% came in below market expectations, it remains significantly distant from the central bank’s target of 3% in the long run. Inflation risks for the first quarter of next year include the El Nino weather phenomenon, the impending minimum wage hike, and potential trucker protests sparked by increases in diesel prices. Wilson Tovar, the head of analysis at Acciones y Valores, emphasized the importance of caution from the board in light of these potential inflationary pressures.
Market Predictions and Future Interest Rates
Despite the decision that will be made on Tuesday, many analysts still anticipate interest rate cuts in January. According to the Reuters survey, the interest rate is expected to reach 8% by the end of next year, with further cuts bringing it down to 5.5% by 2025.