Analysts anticipate a 50 basis point cut to Colombia’s benchmark interest rate in December’s central bank meeting, driven by global uncertainties and fiscal challenges. The proposed reduction aligns with the trend of lowering rates to address inflation, projected to exceed the central bank’s target. Fiscal reform proposals have faced obstacles, complicating financial stability for the government under President Gustavo Petro.
The central bank board of Colombia is scheduled to convene on Friday for its final meeting of 2024, where analysts widely anticipate a reduction in the benchmark interest rate by 50 basis points. This decision is attributed to prevailing global uncertainties, coupled with fiscal challenges faced by the nation. A recent Reuters poll indicated unanimous expectations from all 25 analysts for the board to lower the rate, resulting in a new benchmark of 9.25%. Should this anticipated cut materialize, it would mark the seventh consecutive reduction of the same magnitude.
Wilson Tovar, chief economist at brokerage Acciones y Valores, emphasized the necessity for cautious policies, citing uncertainties surrounding future Federal Reserve actions, impending adjustments to the minimum wage in Colombia for 2025, and broader fiscal instabilities. The fiscal troubles under President Gustavo Petro’s administration have prompted concerns regarding adherence to Colombia’s fiscal rule intended to control public spending. In a recent development, Congress declined to approve a fiscal reform proposal from the government, which aimed to secure $2.7 billion needed for 2025.
Additionally, Colombia’s Autonomous Fiscal Rule Committee has projected essential spending cuts of 40 trillion pesos this year, with an additional 52 trillion pesos in cuts required for the following year. In conjunction with these fiscal challenges, the central bank has revised its inflation forecast for 2023 upward to 8.7%. As of November’s end, Colombia’s inflation rate reached 5.20%, exceeding the bank’s target of 3%. Laura Pirajan, chief economist at Scotiabank in Colombia, noted that while inflation trends are improving, it remains outside the targeted range, necessitating a continued restrictive interest rate policy by the central bank.
The current economic landscape in Colombia is marked by significant fiscal challenges that have necessitated careful monetary policy decisions by the central bank. With inflation above target levels and public spending under scrutiny, the central bank faces pressure to maintain a restrictive interest rate policy despite ongoing cuts intended to stimulate economic activity. The scrutiny of the government’s fiscal policies and spending plans, against the backdrop of global economic uncertainty, adds complexity to the decision-making process for policymakers in Colombia.
In conclusion, Colombia’s central bank is expected to reduce the benchmark interest rate during its upcoming meeting, reflecting a response to continued economic challenges and the need for prudent monetary policy. The anticipated 50 basis point cut encapsulates the board’s efforts to navigate fiscal constraints while addressing inflation concerns. As the situation evolves, the balance between stimulating economic growth and controlling inflation will remain a focal point for policymakers in Colombia.
Original Source: www.brecorder.com
