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JPMorgan Now Expect 100bp January BanRep Rate Hike

COLOMBIA
  • JPMorgan now call for a 100bp hike at the January 28 meeting, to take the policy rate to 4%. They then forecast hikes of 50bp per voting meeting to 5.5% by June, with a final 25bp hike in July to leave the terminal rate at 5.75%. (Previous scenario called for a 5.5% terminal rate by October.)
  • December’s higher than expected inflation was driven by high food prices, but coupled with the announced 10% nominal minimum wage hike, and related indexation effects expected in the coming months, JPM forecasts for 2022 inflation have been pushed well above the target range.
  • Along with incremental data on the activity front, trade balance data this week showed November’s monthly goods deficit at a whopping $2bn just in the month, the highest single month on record, with the trade imbalance set to leave the 2021 current account deficit at some 6% of GDP.
  • With tighter DM monetary policy now more clearly impacting borrowing costs, and political uncertainty rising ahead of elections, Colombia’s external imbalance stands out among peers as a glaring vulnerability.
  • In this context, and with rising inflation expectations offsetting the nominal tightening so far in the cycle when considering BanRep’s real policy rate, JPM now believe BanRep should and will act more boldly to pay heed to latent financial instability concerns and to reinforce its inflation target.
  • Manifestation of a confidence shock that results in a higher credit premium and/or a more disorderly scenario for EM risk aversion amid Fed tightening, could warrant a higher terminal rate in JPM’s view.
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