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Goldman Sachs: CPI Data Confirms Likely 50Bp Hike In December

COLOMBIA
  • In November, consumer prices recorded a high 0.50% mom variation, above our 0.26% mom forecast, the 0.21% mom Bloomberg consensus expectation, and significantly above the 0.16% mom median forecast in the latest central bank survey.
  • The underlying inflation dynamics are turning less favorable, and prices are likely to rebound in the coming months once the VAT holidays end. A clear sign of inflation dissemination is the fact that eight of the twelve CPI groups now register annual readings above the 3% target midpoint, and five of these are above the 4% upper limit of the central bank’s inflation target.
  • GS expect the MPC to continue to normalize policy in the coming meetings. In their assessment, reducing the degree of monetary accommodation is warranted given the 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, recent hawkish regional and global monetary developments, high risk-premia given the challenging fiscal picture, and an uncertain political and policy backdrop also justify the central bank’s strategy of removal of monetary accommodation.
  • At this juncture, GS are anticipating a 50bp hike at the next MPC meeting, with the policy rate reaching 3.00% at end of 2021.

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