09:14 AM EDT, 07/02/2024 (MT Newswires) -- Colombia's central bank (BanRep) decided by a 4-2 majority to lower the policy rate by 50 bps to 11.25% on Friday, in line with Deutsche Bank's expectation.

A couple of board members voted for a 75 bps cut. One board member didn't participate in the meeting.

In the bank's view, BanRep's Board effectively acknowledged that a less forgiving external environment -- reflected in higher risk premiums and a weaker currency (COP) -- restricts its leeway to engage in a more aggressive easing cycle.

This backdrop will largely be shaped by the outlook for FOMC actions as Colombia's idiosyncratic dynamics are unlikely to improve it "meaningfully," stated Deutsche Bank.

As a consequence, the bank expects BanRep to maintain the same cutting speed during the Q3 meetings, opting to further accelerate the easing cycle's pace in Q4.

Deutsche Bank continues to see the policy rate closing the year at 8.75%.

Fiscal risks would continue to weigh on the COP amid a vulnerable regional outlook for foreign exchange. The bank recommends positioning for gradual easing in excess of what markets price through mid-2025, and selling USD/COP downside.