BBVA Expect Inflation To Rebound

Leading on from central bank co-director Soto's comments on inflation, BBVA have corroborated the view that the recent shock is due to bounce back. The add that additional restrictions may even prompt softer monetary policy and have extended their bullish bets on inflation linked 2023 bonds.

• Strategist notes that inflation should be near the central bank's mid-target of 3% by year-end, though it may remain low for Q1.
• Second wave effects and tighter restrictions will weigh on the economic recovery, increasing the likelihood of BanRep cutting rates or delaying the start of the hiking cycle that the market is pricing in for Q4'21.
• As mentioned next Friday will be the first meeting with Leonardo Villar as central bank governor, inheriting a split committee on the current level of the overnight lending rate.