BOGOTA (Reuters) -Colombia’s central bank board is expected to hold the benchmark interest rate at 9.25% on Friday, on the back of mounting fiscal uncertainty and despite recent lower inflation.
A majority of analysts in a Reuters survey last week predicted the hold, while a minority predicted a 25 basis point cut to 9%.
The government’s recent suspension of the so-called fiscal rule, which imposes policy constraints to protect public coffers, and an increase in its deficit target have set off alarm bells in a market already wary of President Gustavo Petro’s economic policies.
The government now has a deficit target for 2025 of 7.1% of gross domestic product, an increase from the previous estimate of 5.1% of GDP.
The finance ministry has significantly increased its 2025 inflation estimate to 4.5%, nearly in line with the central bank technical team’s prediction of 4.4%. Latin America’s fourth-largest economy is facing lower tax revenue, high debt and difficulty reducing spending.
“We are expecting stability,” said Camilo Perez, director of economic investigation and market analysis at Banco de Bogota, though he said chances of a rate cut had increased in recent days on reduced recent inflation and an increase in value for local bonds and the peso. “The fiscal situation has notably deteriorated.”
Inflation, though still well above the central bank’s long-term target of 3%, was down more than expected in the 12 months to May, to 5.05%.
The bank board surprised the market in April with a 25 basis point cut, after a pause in a cutting cycle began in December 2023.
Despite the predicted hold in the rate, 15 analysts who participated in additional Reuters questions in last week’s survey all foresee a rate cut in the coming months, with 11 predicting a cut in July and the remaining four in September.
(Reporting by Luis Jaime AcostaWriting by Julia Symmes CobbEditing by Frances Kerry)
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