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BanRep July 2022 – Analyst Views

COLOMBIA
  • Barclays: There are signals of economic growth starting to moderate (GDP contracted 0.8% m/m in May) that could help contain demand pressures on prices. Moderation in growth could also soften the demand for imports, narrowing the current account deficit and potentially reducing recent pressures on the COP.
    • Therefore, Barclays think Banrep could start to reduce the pace of monetary tightening in September to 100bp and reach a terminal rate of 11.25% in December. However, given that there are no clear signals of inflation coming down yet, the risks for interest rates remain biased to the upside.
  • Goldman Sachs note that, contrary to the previous statement, there is no mention of the current account deficit in the post-meeting statement. The MPC stated that additional information and technical details relevant for this policy decision will be revealed in the July QIR on August 1st.
  • In their view, a restrictive monetary stance (above-neutral policy rate) is warranted given the strong growth dynamics, a positive output gap, above-target inflation, drifting inflation expectations, volatile and weakening COP, and a large external deficit (driven by buoyant domestic demand) whose funding could become more challenging as global financial conditions tighten and central banks in core economies turn more hawkish.
  • In addition, in their assessment, high risk-premium emanating from a challenging fiscal picture and an uncertain policy environment also justify a careful calibration of the central bank’s monetary stance. All in all, GS expect the MPC to raise the policy rate further up to 9.5% in 2022 and expect monetary policy to remain restrictive over the relevant policy horizon.
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