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IBR Swaps Curve Bull Steepens Following Bonilla Remarks

COLOMBIA
  • Colombia’s finance minister, Ricardo Bonilla, stepped up his dovish rhetoric on Wednesday by stating that the central bank should cut rates by 100bps in March. The BanRep voting member had already commented that the committee should cut interest rates by at least 50bp if inflation continues to slow, however, the mention of even bolder cuts appears to have been perceived as a dovish development at the margin.
  • Providing more details, Bonilla said the debate will be whether to move by 50bps, 75bps or 100bps. He explained that Colombia can’t tolerate real rates at the current trajectory because the economic recovery requires starting to reduce rates. President Petro reiterated this point on real rates and said there is “no excuse” to keep the rate high.
  • IBR swap rates shifted lower, with outperformance seen in the front-end. One-year swap rates fell as much as 11bps, with a more moderate 5bp move further along the curve. Analysts have noted that despite yesterday’s move, the IBR curve still prices in far greater odds of a 50bp rate cut compared to an even bolder acceleration of the easing cycle.
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