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Goldman Sachs See Hawkish BanRep Developments

COLOMBIA
  • Goldman Sachs note the 4-3 split vote represents a hawkish development since at the last meeting in March.
  • Governor Villar mentioned that the policy rate is now around neutral levels but highlighted that this in no way means that the MPC has reached a terminal rate. In addition, Villar commented that while inflationary pressures started as supply-driven, part of the inflationary pressures are now due to strong demand growth that is important to moderate. GS read these two statements as hawkish, signalling the need to move the monetary policy rate further up into a restrictive stance.
  • Overall, GS agree with the view that reducing the degree of monetary accommodation towards an above-neutral policy stance is warranted, given the robust growth dynamics driven by consumption, above-target inflation, drifting inflation expectations, and a large current account deficit whose funding could become more challenging as global financial conditions tighten.
  • In addition, in their assessment, high risk-premia, given a challenging fiscal picture and an uncertain election, also justifies a careful calibration of the central bank's monetary stance. All in all, GS expect the MPC to drive the policy rate further up in 2022, to at least 7.50%.
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