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Colombia: Minutes: Split decision, Majority called for a cut focusing on growth. Minority focused on resilient expectations

By:  Pedro Tuesta Posted:  13 Mar 14:12
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COP - Minutes: Split decision, Majority called for a cut focusing on growth. Minority focused on resilient expectations.

 

Bottom Line - Majority focused on weak growth and consumer confidence, minority focused on resilient inflation expectations and signs the economy is about to rebound. As the board new elements seems to be in the dovish side. We expect rates to fall again in March.

 

Pedro Tuesta

 

The Minutes from February Monetary Policy Meeting that gave a surprising decision underlines the fact that the majority of the board focused more on the signs that consumer confidence was falling faster than expected even as the same directors noted that there has been a break in correlation between the indicator and domestic demand and household consumption. Still they use the indicator along with the slowdown in manufacturing and the rise in unemployment to support their view that the conditions call for continue fall in inflation and therefore there is room to resume easing.

The dissenting minority focused however on the fact that inflation expectations are very resilient and had not shown any signs of moving towards Banrep central target. Moreover a director suggested that there are significant signs of global uncertainty to be cautious on the pace of easing and that there are signs that the economy has touched bottom and therefore we should expect a recovery. Indeed those were the talking points of Banrep Manager before the meeting and the main reason why the market was surprised by Banrep decision.

 

Looking ahead we believe that the new additions to the board are more likely to align to the majority and therefore are expecting the pace of easing to continue with a 25bp rate cut in March and to close the year at 6.0%.

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