By Nelson Bocanegra
BOGOTA (Reuters) -Colombia’s central bank will cut its benchmark interest rate next week, a Reuters poll suggested on Friday, although analysts expect the bank to act cautiously for the rest of the year due to the worsening state of the government’s finances.
Sixteen of 20 analysts surveyed said the bank would reduce the benchmark interest rate by 25 basis points to 9%, following a sharper-than-expected slowdown in inflation in June. One analyst forecast a 50-basis-point cut, while the remaining three expected the bank to hold the rate steady, as it did in June.
Analysts said the decision is unlikely to be unanimous.
“Our expectation (of a 25-basis-point cut) is largely explained by the downward surprise in June’s inflation and its effect on expectations for the coming months,” said investment firm Corfi.
Consumer prices rose 0.10% in June, bringing 12-month inflation to 4.82%, below market expectations, though still well above the central bank’s long-term target of 3%.
Some analysts who expect a pause cited inflation that is likely to remain above the central bank’s 3% target through 2025, as well as growing fiscal concerns.
Latin America’s fourth-largest economy is facing lower tax revenue, high debt and difficulty reducing spending.
“Concern over the fiscal issue continues to increase due to both lower government revenue collection and expectations of a higher fiscal deficit,” Colombian bank Davivienda said in a note. “It is also important to mention that the economy is not performing poorly in terms of growth.”
The central bank’s meeting will take place a day after the U.S. Federal Reserve meets on July 29-30, when it is expected to hold U.S. rates steady.
Meanwhile, analysts raised their year-end expectation for Colombia’s benchmark rate to 8.50% from 8.25%. The forecast for the end of 2026 remains unchanged at 7%.
(Reporting by Nelson Bocanegra; Writing by Brendan O’Boyle and Hugh Lawson)
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