Societe Generale’s Dev Ashish notes that Banco de la República delivered a larger-than-expected 75bp hike to 12%, reinforcing a restrictive stance as inflation and expectations stay well above target. The bank highlights upside risks from El Niño, wages and food/fuel prices, and maintains its forecast for a 12.50% terminal rate, with downside risks now reduced and policy likely to stay tight into 2027.

BanRep frontloads tightening cycle

"Banco de la República (BanRep) resumed its tightening cycle with a hawkish 75bp hike to 12%, exceeding both our 50bp call and market consensus."

"While the absence of explicit forward guidance reinforces the Bank’s data-dependent approach, the scale of the move signals willingness to tighten further if inflation dynamics worsen."

"Near-term risks remain skewed to the upside—including El Niño, wage indexation, and food and fuel price volatility—but improved policy credibility should help stabilize the front end and anchor medium-term expectations."

"We continue to see the terminal rate at 12.50%, with downside risks now materially reduced."

"Over the medium term, a more orthodox fiscal trajectory could open the door to easing in 1Q27, but for now, policy will remain firmly restrictive amid still-unanchored inflation and political uncertainty."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)