EM LATAM CREDIT: Republic of Colombia (COLOM; Baa2neg/BB+neg/BB+neg): Rate Cuts

“COLOMBIA CAN BE 'MUCH MORE AGGRESSIVE' CUTTING KEY RATE: AVILA” – BBG

Neutral

• It is not surprising for the administration to want lower rates as it could over time lower borrowing costs and potentially stimulate economic growth.

• The market consensus had been for inflation and interest rates to come down over the course of 2025 but March 7, 2025 inflation data shed some doubt on those projections printing +1.14% for February and 5.28% y/y while core data was 1.26% and 5.44% respectively.

• Colombia issued 12-year notes November 2024 at T+352bps, last quoted T+366bps. The previous finance minister announced in February intent to issue USD3.6bn in international markets this year. Multiple rating downgrades are priced in with lower rated Brazil (Ba1pos/ BB / BB) quoted 112bps lower in yield for similar maturity 10 year notes.

• The fiscal deficit was 6.8% of GDP in 2024. The new finance minister German Avila is quoted as saying the government needs to raise tax revenue and cut spending. The previous finance minister resigned reportedly over disagreements with the president on fiscal policy.

• Congress has blocked attempts at tax, health system and labor reform so President Petro called for a national referendum on the spending proposals.