Latam Daily: Colombia Monetary Policy Minutes and Mexico Citi Survey of Expectations

• Colombia: The board prefers to wait and see how inflation responds to multiple shocks

• Mexico: Citi Survey of Expectations expects a 50bps cut by Banxico

COLOMBIA: THE BOARD PREFERS TO WAIT AND SEE HOW INFLATION RESPONDS TO MULTIPLE SHOCKS

• Some board members are talking about a crowding-out effect

The central bank released minutes regarding January’s monetary policy meeting late on Wednesday, February 5^th. In the first monetary policy meeting of the year, the board interrupted the easing cycle amid a significant surge in the risks around the inflation path. The minutes confirm that the board prefers to wait and see the evolution of inflation before continuing the easing cycle. International volatility is an issue, however, the minutes reflected that what matters more in the risk assessment of the board was the significant increase in the minimum wage, which exceeded the inflation target by 6 ppts at year-end and 8 ppts at the inflation target. As an interesting ingredient in the minutes, we saw that some board members are seeing a crowding out effect in Colombia, arguing that the elevated financing need of the government is competing with the private sector arguing that banks have increased their COLTES holdings, while credit is not growing very well.

Yesterday’s minutes and the Monetary Policy Report pointed out that BanRep’s scenario is changing significantly due to the minimum wage increase as indexation effects on the CPI basket could delay, possibly by a year, the compliance with the inflation target. In that scenario, the technical staff of the central bank projects an interest rate path above that shown in the latest economist expectations survey (that pointed to a year-end rate of 7%). At Scotiabank Colpatria, we don’t see the chance of inflation anchoring in the target range during 2025. However, we expect the central bank to resume the easing cycle in March with a 25bps cut to reach 7.75% at the end of the year. We expect inflation to decrease to 5.15% y/y on Friday’s reading and to ~4.84% y/y in February’s reading, which could provide some space for the central bank to consider resuming the easing.

In the case of assets, gradualism of monetary policy is reducing the possibility of having a huge appreciation in COLTES markets, while fiscal liquidity needs could at least support an expectation of the yield curve maintaining its current steepening. In the case of the FX, the cautious tweak in the monetary policy could contribute to maintaining current levels, in which we are having a coincident of inflows due to the corporate tax season as better investment inflows in the FI market. In the medium term, we still favour depreciation as the macroeconomic picture is still challenging to finance the fiscal and external deficit.

Further details about BanRep’s minutes and the Monetary Policy Report:

• BanRep’s board paused but pointed to further cuts in the future. In the minutes, the board said they prefer to wait and see inflation evolution in the context of multiple shocks. The main concern is around indexation effects from the minimum wage; however, most of this effect will be observed in the first quarter of the year. By the next meeting on March 31^st, we expect the board to resume the easing cycle with a cut of 25bps, still in a split vote.

• Minimum wage concerns are delaying the achievement of the inflation target by one year. In the Monetary Policy Report, the central bank increased their inflation projections, passing from 3.1% for Dec-2025 in the previous report to 4.05%, while for Dec-2026, the expectation is 3.05%. Core inflation is projected at 3.90% in Dec-2025 and 3.4% in Dec-2026.The previous scenario conducted a more gradual economic recovery that now suggests a GDP growth of 2.6% in 2025 (same as Scotiabank Colpatria’s projection) and an acceleration to 3.4% in 2026. In the previous context, the board estimates the rate path should be higher than the average expectation in the recent economists’ survey. This trajectory also accounts for the increase in the real neutral rate estimation, which is now at 2.7% in 2025 and 3.0% in 2026.

• Fiscal deterioration is a constraint on monetary policy. The board sees the combination of an unpredictable international context and domestic fiscal uncertainty as a challenge for the FX market that, in turn, is a threat to inflation. In an additional quote, some members who voted for rate stability argued that Colombia is facing a crowding-out event in which banks prefer to buy COLTES instead of increasing credit. From our perspective, this effect is deepening because, in the credit market, some changes in the regulation around the cap (usury) rate and the competition in the mortgage market are taking lower rates for the private market. Previous situations lead to rate levels that don’t properly reflect the risk, motivating banks to overweigh their holding in public debt. This dynamic has been evident in the COLTES holders’ reports, in which banks are very close to having the same participation as offshore investors.

• The board member who voted for a 25bps cut considered that continuing with the easing cycle contributes to consolidating investment recovery. This member argued that a 25bps cut will maintain the rate in a contractionary stance but will also support better growth and could lead to better tax collection that contributes to reducing the fiscal deficit.

• The board member who voted for a 50bps cut (Finance Minister) said that fears around the minimum wage’s effect on inflation are debatable. Minister Guevara argued that in the previous year, despite high increases in the minimum wage, inflation has continued going down, and the unemployment rate has performed relatively well. In our perspective, both opinions have an explanation; in the case of inflation, Minister Guevara should notice that the stickiness produced by the minimum wage is mostly reflected in services inflation, while in the case of the unemployment rate, its decrease has been mostly due to lower labour participation. On the fiscal front, Minister Guevara said that the Government is committed to macroeconomic stability and compliance with the debt service.

• Our take: Minutes and the Monetary Policy Report emphasized that the minimum wage increase is the most important emerging risk for inflation. In that sense, it will be important for the board to monitor the forthcoming inflation prints before deciding to resume the easing cycle. At Scotiabank Colpatria, the easing cycle will continue in March with a 25bps cut. For the rest of the year, we expect the board to continue with that pace to close the year at 7.75%, which means that Colombia will maintain the current levels of real rates most of the year.

—Jackeline Piraján

MEXICO: CITI SURVEY OF EXPECTATIONS EXPECTS A 50BPS CUT BY BANXICO

The Citi Survey of Expectations showed that most analysts (27/35) expect a 50 basis point cut at Banxico’s monetary policy meeting later today. On the other hand, 8 out of 35 participants still expect the cut to be only 25 basis points.

The survey of expectations of private sector economic specialists for January, published by Banco de México, was released. It highlights a slight increase in the median inflation expectations for 2025 from 3.80% to 3.83%, while for 2026 it remains unchanged at 3.70%. Similarly, core inflation is anticipated to be 3.74% at the end of 2025, above the 3.72% anticipated in the previous survey, while for 2026 core inflation remained at 3.60%. Regarding growth, it was slightly revised downwards for 2025 from 1.12% to 1%. For 2026, a rebound to 1.80% is expected. Regarding the exchange rate, analysts revised their forecasts upwards for 2025 from 20.53 pesos per dollar to 20.90, while for 2026 they expect it to be 21.30 from 21.00 pesos per dollar in the previous survey. Finally, the median of specialists’ forecast that the reference interest rate will end 2025 at 8.50% from 8.38%, while for 2026 they anticipate it to be 7.50% in December.

Regarding indicators, Banxico released the remittance inflow numbers for December 2024, which stood at 5.228 billion dollars, implying a contraction of -3.8% m/m compared to the previous month and -4.9% y/y in annual terms (chart 1). This is the largest annual decline since 2009 for the month of December. However, during 2024, remittances totaled 64.745 billion dollars, 2.3% higher than the 2023 figure, which was 63.319 billion dollars. It is also worth mentioning that 99.1% of total remittance income was made through electronic transfers. This supported the consumption of Mexican households. However, going forward, we could see a negative impact on remittance inflows as a result of the Trump administration’s immigration policies, although this effect could be partially offset by possible tax cuts on tips in the United States.

Private consumption for November moderated its pace, growing only 0.3% y/y annually (1.4% previous), with national consumption rising 1.0% (chart 2). In detail, national goods rebounded to an advance of 0.7% (-0.1% previous), thanks to a rebound in durable goods (15.1%), which compensated for the decline in semi-durable goods (-1.2%) and non-durable goods (-0.8%), while services slowed to 1.4% (1.6% previous). On the other hand, imported goods fell -0.7% from 6.0%, marking their first annual decline since July 2022. Year-to-date, consumption averaged a 3.2% increase compared to the same period a year earlier, thanks to the greater dynamism observed in the first months of the year. In its seasonally adjusted monthly comparison, private consumption rose 0.5% m/m after two months of decline (-0.7% previous), driven by a rebound in all three components, with imported goods rising to 1.7% from -0.5% previous, national goods to 0.5% from -0.8% previous, and services to 0.1% from -0.3% previous. Looking ahead, we consider that private consumption could face greater weakness, due to increased uncertainty that has also slowed job creation, as well as less dynamism in remittances, affected by more aggressive U.S. immigration policies.

Also in November, gross fixed investment summed three months of declines (chart 3), falling this time -0.7% y/y n.s.a. (-2.6% previous). Within it, machinery and equipment rose 5.8% from 7.8%; in particular, the national subcomponent increased 11.3% (8.3% previous), while the imported subcomponent moderated to 2.0% (7.5% previous). In contrast, construction maintained its declining trend, falling -6.0% (-10.9% previous), marking four consecutive months of drops, with the non-residential investment subcomponent falling -14.7% (-16.7% previous) and residential investment rebounding to 7.1% (-2.5% previous). For the January–November period, the index averaged a 4.2% YTD increase thanks to early-year gains. In the seasonally adjusted monthly comparison, GFI showed a slight advance of 0.1% m/m (from 0.3% previous), highlighting that construction decreased -1.0% m/m, although machinery and equipment rose 1.7%. Looking ahead, uncertainty and volatility in Mexico-U.S. trade relations could lead to greater risk aversion among some investors, which could foster a weaker start of the year in investment.

—Rodolfo Mitchell & Miguel Saldaña