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Goldman Sachs on BanRep: Anticipate Another 50bp Hike In Dec

COLOMBIA
  • The decision to accelerate the pace of withdrawal for monetary accommodation reflects the recent behaviour of inflation, the upward revisions to the outlook for inflation and GDP growth, and the anticipation of a wider current account imbalance (5.3% GDP). With the higher growth forecasts, the MPC expects the output gap to narrow at a faster pace than previously assumed.
  • In their assessment the MPC will continue to normalize policy in the coming meetings. Reducing the degree of monetary accommodation is warranted given the expected real economic activity growth, domestic demand dynamism, high inflation prints, deteriorating headline inflation expectations, and a large and widening current account deficit.
  • In addition, hawkish regional and global monetary developments, high risk-premia given the challenging fiscal picture, sovereign rating downgrades, and an uncertain political and policy backdrop also justify the central bank's move towards monetary policy normalization.
  • At this juncture, GS anticipate another 50bp increase at the MPC meeting in December, with the policy rate reaching 3.00% by the end of 2021.
  • They expect the Monetary Policy Report to provide greater detail on the expected paths for inflation and the narrowing output gap, as well as the widening current account deficit. GS also expect the central bank to shed some light on the expected path for monetary policy, and to outline the set of conditions that might take the policy rate higher into an above-neutral stance.
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