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BanRep Analyst Views Following Friday's 50Bp Rate Hike

COLOMBIA
  • BBVA: The risks of indexation, inflationary pressures and the large current account deficit, as well as the split board, lead BBVA to think that BanRep is opening the window to a larger rate adjustment than seen so far with the objective to anchor expectations.
    • They consider that the inflationary scenario and the rapid recovery in activity, concentrated on consumption, justify rates above the natural level in 2022 to control inflation expectations.
  • Goldman Sachs: GS expect the MPC to continue normalizing policy in the coming meetings, with the monetary policy crossing its neutral level to reach a slightly restrictive monetary stance next year (policy rate at 5.50% by end-2022).
    • In their assessment, an above-neutral policy stance is warranted given above-target inflation, drifting inflation expectations, and a large and widening current account deficit whose funding could become more challenging were global financial conditions to tighten. In addition, high risk-premia, given the challenging fiscal picture and an uncertain political and policy backdrop, also justify a careful calibration of the central bank’s monetary stance.
  • JPMorgan: At the post-meeting press conference, JPM did not sense Governor Villar conveying much of a sense of urgency despite the very close decision of the vote, which could have implied more hawkish concerns. Rather they heard his tone as steady and vigilant.
    • Their call remains for BanRep to keep lifting the policy rate at a 50bp pace in the next three voting meetings in January, March and April to reach 4.5% from the current 3%. This pace would be needed just to keep the ex-post real rate from falling further into negative territory given their view on inflation. They then call for a deceleration to 25bp per voting meeting in June, July, September and October to finish the cycle at 5.5%.
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