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BBVA on BanRep’s October Decision

COLOMBIA
  • The decision has a couple of explicit messages. First, the unanimous decision after a split vote in September, shows an effort to send a unified message that also seeks to reduce the relevance of President Petro's recent interventions on his dissatisfaction with the rise in interest rates. This message is amplified given the finance minister confirmed a message in this sense and highlighted that it was he who changed the vote between September and October.
  • Secondly, the 100bp hike reaffirms the message of gradual adjustments and maintains the focus on long-term factors for BanRep. The change of order in the statement released seeks to show its concern with the recent volatility and BBVA believe that it is a step, in particular if the tensions remain, to maintain a stronger monetary policy in the near future.
  • The emphasis on the good behavior of the markets and the non-intervention in the TES markets and currencies aims to ratify a structural message to allow the free fluctuation of the currency. However, they may also be acknowledging that in the preceding days, markets had been correcting and any significant deterioration may warrant the use of non-conventional tools.
  • However, if we consider that the recent episode of volatility in the markets (especially COP) may lead to revised inflation forecasts, the tightening cycle can be extended until at least December.
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