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JPMorgan Adjusts Call For 100BP Moves in April/June and 50BP In July

COLOMBIA

JPMorgan:

  • Notably absent from the communique were any mention of a) the Fed, which has begun hiking and now is expected to move much more quickly than was foreseen back in January when BanRep last voted; or b) challenges to policy continuity depending on the outcome of the May/June presidential first and second round elections, and elevated credit risk premium as a result of this uncertainty.
  • BanRep’s decision seems consistent with aspirationally dovish messages from Chile and Brazil of late, which we see as facilitated to some degree by currency outperformance amid stronger terms of trade—a dynamic that seems to taking some sense of urgency away from regional monetary authorities.
  • JPM’s concern is that BanRep has underemphasized the expectations channel, and that by taking a longer time to get even to a neutral stance in terms of the real policy rate (estimated by them at 1.8-1.9%) that they are opening the door to a quicker deterioration of inflation expectations than the steady pace observed in recent months.
  • In all, JPM adjust their call for BanRep to keep moving at 100bp clips in the next two voting meetings (April and June, the latter occurring after a likely second round election), with a final 50bp hike in July to take the policy rate to 7.5%.
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