The Colombian economy is going through a moment of tension in its fiscal foundations, and that disorder already had a specific cost with the cancellation of the flexible credit line (LCF) with the International Monetary Fund (IMF). In his most recent analysis, JP Morgan stressed that this decision was a direct consequence of deterioration in the fiscal discipline and the temporary suspension of the rule that served as an anchor of public accounts.
While the fund had warned that access to ease would remain frozen due to tax risks, for this bank, repeated fiscal deviations and the suspension of the rule implied that the Colombian policy framework already It could not be considered “very solid”, an indispensable condition to maintain the eligibility of the LCF.
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It should be remembered that before that reality, the country opted this week to formally cancel the line, an instrument that for years had been seen as automatic support amid external shocks, as happened during the pandemic.
Banrep seeks to give peace of mind
The JP Morgan report highlights that, despite the departure of the LCF, the Bank of the RepublicA transmitted a message of calm, highlighting that currency liquidity remains broad and sufficient to face eventual episodes of international volatility and that for that reason, the issuer considers that there is no justification to reopen the program of accumulation of international reserves.
JP Morgan
EFE
The financial entity interprets this gesture as an attempt to preserve confidence in the midst of an uncertain global environment, since although the absence of the LCF eliminates an external support signal, the level of reserves, which far exceeds liquidity standards, allows the central bank to affirm that the country is not unprotected in the short term.
They also stressed that the discussion about the LCF coincided with the most recent monetary policy meeting of the BANREP, in which the Board of Directors decided, by majority, to maintain the interest rate in 9.25%, after four co -director supported The decision, while two voted for a cut of 50 basic points and one for 25 points.
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“Inflation was the key factor that inclined the balance. In August, the consumer price index stood at 5.1% per year, and the basic inflation – which excludes volatile food and regulated prices – reached 4.8%, both above what was projected by the technical team,” they said.
Similarly, they indicated that the Central Bank statement acknowledged that convergence Towards the 3% goal it will be slower than expected, and inflation expectations already reflect that scenario, since the September survey threw 5% by 2025 and 4% by 2026.
The household economy will not be alien to the fiscal crisis.
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The pressure of fiscal policy
The analysis of JP Morgan emphasizes that the expansive fiscal policy of the Government will continue to be a determining factor in the direction of inflation and sustainability of external accounts and that the expectation of an increase in the minimum wage well above the observed inflation adds another element of pressure, by generating increases in labor costs that exceed the growth of productivity.
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These factors reinforce the vision that inflation of services will remain high, reducing the margin of maneuver of the Central Bank to start a cycle of feat cuts. According to JP Morgan, the policy rate will remain stable up to at least the second quarter of 2026, which reflects the need to conserve a restrictive tone against a complex context.
In this way, one of the largest banks in the United States reaffirms that the fiscal crisis already had a direct effect and it was that Colombia lost an international support instrument that is only granted to countries with solid foundations, remembering that the underlying challenge remains to restore the discipline of public finances and recover international credibility.
Daniel Hernández Naranjo
Portfolio journalist
