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Goldman Sachs Do Not Rule Out A Hike Larger Than 100BPs

COLOMBIA
  • Goldman Sachs expects BanRep to hike its policy rate by another 100bp to 11.00% given the challenging domestic and external macro-financial backdrop and recent market and policy developments.
  • In their view, another 100bp hike is warranted given: (1) the negative inflation surprise in Sep, with headline inflation surging to two-decade record high; (2) broad-based deterioration of short- and medium-term inflation expectations; (3) sharp COP depreciation pressures (8% depreciation against the USD since the last MPC meeting) potentially exacerbating the pass-through to domestic prices; (4) still buoyant economic activity (ISE grew 1.4% mom sa in Aug); (5) record high trade balance deficit (-US$2.2bn in Aug); (6) market unsettling policy statements by senior government officials (including remarks suggesting an inclination towards the adoption of capital controls); and (7) local debt market distress.
  • A decisive hike is also warranted by the fact that a dovish/milder hike may invite further pressure on the COP and the next MPC meeting will only take place Dec 16 and in the interim there will be two FOMC decisions.
  • Given the intense currency and local rates pressures GS do not rule out an even larger hike (up to 150bp), particularly if financial market pressures persist throughout this week.
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