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JPMorgan on Reserves Accumulation Announcement

COLOMBIA
  • Beyond the fact that Colombia should start repaying what it tapped from the FCL next year, and that the overall FCL lines have been reduced post Covid, JPMorgan also note that Andean central banks still offering very high real rates to secure inflation convergence seem poised to show low tolerance for strong real exchange rate appreciations – particularly for countries that are enjoying positive basic balances, as Colombia.
  • It should be noted that this mechanism has been used in the past for similar purposes.
  • Moreover, looser global financial conditions, if sustained, may also prompt portfolio inflows into the region given the wide, though narrowing, interest rate differential.
  • If the ‘goldilocks’ scenario pans out, an active role of the monetary authority in the exchange rate market should be expected.

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