BOGOTA: The board of Colombia’s central bank will meet on Friday for its last meeting of the year, where analysts expect members to vote to cut the benchmark interest rate by 50 basis points amid global uncertainty and the country’s fiscal challenges.
All 25 analysts in a recent Reuters poll said they expect the board to vote for a cut of 50 basis points, taking the benchmark interest rate to 9.25%. If the analysts’ forecast is right, the cut would be the seventh consecutive 50 basis point-reduction.
“Prudence must be maintained” because of uncertainty about the course of the Fed, a coming minimum wage increase in Colombia for 2025 and fiscal uncertainty in the Andean country, said Wilson Tovar, chief economist of brokerage Acciones y Valores.
The government of President Gustavo Petro has been afflicted with fiscal troubles, which have put at risk compliance with the country’s so-called fiscal rule, designed to impose limits on spending to prevent deterioration of public finances.
This month Congress rejected a $2.7 billion fiscal reform proposed by the government to finance 2025 spending.
On Thursday, Colombia’s Autonomous Fiscal Rule Committee said the Andean country would need to cut spending this year by 40 trillion pesos, followed by a subsequent cut of 52 trillion pesos next year.
Colombia central bank ups 2023 inflation projection to 8.7%
Colombia’s 12-month inflation through the end of November closed at 5.20%, above the bank’s 3% target.
“Although inflation has corrected, it remains outside the target range and the central bank wants to ensure convergence in 2025, so it must continue to have a restrictive rate,” said Laura Pirajan, chief economist of Scotiabank in Colombia.
The bank has cut its benchmark rate by 325 basis points since launching a downward monetary policy in December last year.
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