Colombia Accelerates Easing

Colombia’s BanRep has cut the monetary policy rate by 100bp to 8.0% and economists see more cuts ahead. The central bank says its decision was based on the drop in inflation, which has been falling for three consecutive months and stands at 7.18%. Another reason was a continued deceleration of the global and Colombian economy. Bulltick Capital, which correctly predicted 100bp when the consensus was for 50bp, says that the bank will likely continue making 50bp reductions until 7.0%. After that, Bulltick expects two 25bp cuts. The fall was in line with Goldman Sachs’ call for 75bp and 100bp. The shop says easing may continue if the economy continues to contract at a fast pace, if inflation data improves this month and if the COP remains stable in the next 4 weeks. “We expect the bank to drive the policy rate down to a below neutral range of around 5.0%-5.5% by the third quarter of 2009, with risk tilted towards an even lower policy rate level of 4.0%-5.0% . . . if recession lasts all first quarter and threatens to extend into the second quarter,” the shop says.