Central Bank keeps rates unchanged again in March

Bank delivers an unexpected hold: At its meeting on 31 March, the board of directors of the Central Bank of Colombia (Banrep) decided to maintain its policy rate at 9.50%. As a result, Banrep extended the pause in its monetary policy easing cycle—which has seen a cumulative 375 basis points of cuts since December 2023—defying market expectations of a 25 basis points reduction. Once again, the move was not unanimous; three of the board’s seven members preferred a 50 basis points cut.

Elevated inflationary pressures drive decision: As in its previous meeting, Banrep focused on tackling rising inflationary pressures rather than stimulating economic activity. Inflation seemingly stalled above the Bank’s 2.0–4.0% target range at the tail end of 2024, and inflation expectations through 2027 remained entrenched above the 3.0% midpoint. Moreover, Banrep noted that future disinflation faces risks arising from mounting fiscal challenges and external uncertainty—the latter associated with U.S. trade and migration policies under President Trump. Meanwhile, the Bank upgraded its outlook for GDP growth in 2025 from 2.6% to 2.8%, taking a rate cut further off the table.

Dovish shift on the horizon despite Bank’s communiqué, but upside risks loom: In its communiqué, the Bank struck a more hawkish tone than in its last meeting, stating that it would maintain a wait-and-see approach and assess the “feasibility” of monetary easing ahead. Still, our Consensus is for GDP growth to undershoot the Bank’s forecast in 2025. Moreover, March marked the first interest rate votes made by the three new members of the board, comprising the new finance minister and two picks by President Gustavo Petro, which should push for a dovish shift in the upcoming meetings. As a result, our panel sees Banrep resuming interest rate cuts as early as Q2 and delivering 100–300 basis points of cuts by December. That said, given the unexpected nature of the Bank’s recent decision, our analysts could raise their end-2025 interest rate forecasts in the coming months. A further deterioration in the country’s fiscal metrics and a worsening trade backdrop are upside risks to rates, while government interference in monetary policy is a factor to watch. The Bank will reconvene on 30 April.

Panelist insight: Goldman Sachs’ Santiago Tellez commented: “Given our inflation outlook and the post-meeting signals from Governor Villar—likely having voted for a hold—who argued that reaching a consensus to lower the policy rate should be easier if the disinflation trend consolidates, we still see room for the resumption of the cutting cycle in April—barring renewed sovereign risk premium pressures or sustained weakening of the exchange rate. We still see the MPC delivering a string of additional moderate cuts—potentially at a steady pace—for an end-year rate of 8.0%.” Analysts at Itaú Unibanco were more hawkish: “Once again the decision was a coin toss. Fiscal risks loom large, weighing on the majority of the Board. We expect the gradual disinflationary process to resume in March, however, there are still upside services and regulated price risks. We will likely revise our 8.0% year-end 2025 rate call higher.”

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