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Barclays On Latest Reserves Accumulation Announcement​

COLOMBIA
  • Barclays Say Reserves Announcement Reflective Of Strong Improvement In Macroeconomic Conditions
  • Barclays think the reserves accumulation program announcement itself should have a limited effect on USDCOP but note that this is more about the signal than the event.
  • With that said, the signal is not great, as the announcement coincides with the beginning of the easing cycle and markets have learned from Chile in the past several months that accumulating reserves while cutting rates is a fine balancing act. Barclays had thought Chile was in a decent position to buy USD, given that it was fundamentally in a much better place than a year earlier. But big easing cycles, with carry erosion, and USD purchases are not always comparable (especially if the global environment turns averse for some unexpected reason).
  • Thus, Barclays think USDCOP should be able to handle this as long as the external environment remains supportive. Banrep is starting to cut at a point when the global mood has shifted and developed market central banks are talking about easing rates. And it is true that Colombia's stance is different from Chile's. Authorities started the easing cycle more slowly, and this program is smaller and more cautious with the options structure.
  • Moving from the possibility of FX intervention to contain depreciation just a year ago to the announcement of an FX accumulation program now is reflective of the strong improvement in Colombia's macroeconomic conditions and the reduction of the perceived risks. In the medium term, Barclays see the measure as positive and expect it to reinforce the buffers the country has to contain potential external shocks.
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