Board members at Colombia's central bank are anticipated to opt for a smaller rate cut at their upcoming meeting due to uncertainty surrounding inflation, the nation's fiscal outlook, and the U.S. Federal Reserve's policy actions.
In a recent Reuters poll, 16 out of 23 analysts predicted a 25-basis-point reduction in the central bank's benchmark interest rate to 9.25%. Five analysts anticipated no change, one predicted a 50-basis-point decrease, and another forecasted a 75-basis-point cut.
Following the central bank's unexpected 25-basis-point rate reduction in December, from 9.5%, which deviated from six previous 50-basis-point cuts, differing opinions have emerged. If the majority prevails and a 25-basis-point cut occurs at the first meeting of the year, the benchmark rate would reach its lowest level since August 2022. The central bank commenced its rate-cutting strategy in late 2023, having already lowered rates by 350 basis points.
Colombia's central bank convenes shortly after the Fed's recent meeting. Analysts and traders suggest that a Fed rate adjustment may not happen until June.
Chief economist at Alianza brokerage, David Cubides, stated, "We expect a more moderate rate cut from the central bank due to global uncertainty, regional volatility, local fiscal negotiations, and their impact on inflation."
Consequently, concerns have been raised that the recent minimum wage increase, exceeding inflation, might delay a return to the central bank's 3% target. The government raised the minimum wage for 2025 by 9.54%, significantly surpassing last year's inflation rate of 5.2%.
In addition to economic challenges, Colombia faces fiscal difficulties, prompting President Gustavo Petro's administration to slash spending by around 12 trillion pesos ($2.88 billion). Petro's finance minister hinted at the possibility of proposing another bill soon.
The central bank is expected to welcome Laura Moisa and Cesar Giraldo onto its board in February, two appointments made by President Petro.