3Q26 Monetary Policy Report (IPM): Hawkish Revisions, Disconnected With Surveys

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M

Idea

August 5, 2026 04:32 PM GMT

Colombia | North America

Morgan Stanley & Co. LLC

Nicolas Eterovic

Economist

3Q26 Monetary Policy Report

(IPM): Hawkish Revisions,

Disconnected With Surveys

Morgan Stanley C.T.V.M. S.A.

Julia Lobato Barbosa

Economist

Key Takeaways

IPM remains hawkish, with meaningful upward revisions to both growth and

inflation forecasts.

Policy paused at 12.00% in July, but the reaction function remains biased toward

tightening if expectations deteriorate further.

Given the Board chose to hold despite these upward revisions, we think the

practical bar for resuming hikes is now higher than before July.

Increasing the risk that policy needs to remain at current levels for longer, or

resume tightening, relative to what the Bank's own baseline currently signals.

Relative to the April IPM, the July report brings important changes to the macro

outlook. Inflation projections were revised meaningfully higher. Headline inflation is

now expected at around 6.9% by end-2026 (from 6.4% in April) and converging to

only 4.3% in 2027 (from 3.7%). The sharp upward revision contrasts with the April

report, which had shown little further repricing at the time, suggesting the Bank

now sees a higher inflation path as still building rather than already incorporated.

On activity, revisions are modest but directionally relevant. Revisions here are

also directionally hawkish, in contrast to April's softer growth outlook. Growth for

2026 is revised up to 2.5% (from 2.4%), reflecting stronger near-term momentum,

while 2027 is revised only modestly down to 1.9% (from 2.1%) — a far more resilient

medium-term path than the April vintage implied, when 2027 growth had actually

been revised up from 1.6% to 2.1%.

In terms of policy, the message remains with a hawkish bias, but inconsistent

with the recent policy decision. Overall, the message is that inflation is not just

high, but has become stickier, with convergence to target now pushed out to 2028

— a full year later than the horizon implied in April. In terms of policy, BanRep

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