Central Bank resumes loosening cycle in April

Bank delivers surprise and unanimous cut: At its meeting on 30 April, the board of directors of the Central Bank of Colombia (Banrep) decided to reduce its policy interest rate by 25 basis points to 9.25%. As a result, Banrep resumed its monetary policy easing cycle after a brief pause, bringing the cumulative rate reductions to 400 basis points since December 2023. The move surprised market analysts, who had priced in a hold, and was the first unanimous decision in nearly two years.

Bank tackles muted economic growth: The Central Bank likely shifted its focus to stimulating economic activity in April. It downgraded its forecast for 2025 GDP growth to 2.6% from 2.8% previously as elevated global trade tensions are raising the country’s risk premium, as well as depressing external demand and the prices of key exports, particularly oil. In addition, Banrep highlighted that both headline and core inflation resumed a downward trend at the outset of 2025, having eased significantly from peaks seen in 2023, with the latter hitting an over three-year low in March, giving it more room to cut rates. That said, the move likely had some political motivations, as three of the board’s seven members were handpicked last month by President Gustavo Petro, who has long criticized the Bank for keeping rates elevated; in particular, inflation remains far above Banrep’s target and fiscal metrics continued to deteriorate in early 2025, which is partly why markets expected a hold in April.

Further rate cuts on the horizon: The communiqué was void of explicit forward guidance. Still, the Bank struck a somewhat more dovish tone, omitting mention of a need to assess the “feasibility” of further cuts. Banrep’s unexpected April cut could hint at a government-driven dovish shift. As a result, our Consensus is for the Bank to cut rates by a further 25 basis points at its next meeting on 27 June, and to ease its stance further by December. Still, the spread on the end-2025 rate forecast remains wide at 7.00–8.75% given elevated uncertainty tied to a deterioration in the country’s fiscal metrics, a worsening trade backdrop and government interference in monetary policy.

Panelist insight: Analysts at Itaú Unibanco commented: “With the disinflationary process expected to continue, we expect the Board to continue reducing the restrictivenes of monetary policy with cuts of 25bps per meeting. Risks to inflation persist, stemming from COP depreciation and energy price adjustments, while domestic fiscal uncertainty remains elevated, conditions that support a cautious cutting strategy.” BBVA’s Alejandro Reyes González was more hawkish: “We agree with the Bank’s Governor, interest rates will tend to be lower in the coming months, although their pace of reductions will continue to be subject to the special conditions governing the global and local economy. However, we do emphasize that if fiscal risks are not contained, there is a risk of ending the current cycle with a natural (or terminal) rate higher than the anticipated and historical one.”

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