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Local Assets Extend Rally Following Below-Estimate CPI Data

COLOMBIA
  • The Colombian peso has continued to shine on Thursday, extending an extremely hot streak for the currency in recent weeks. Today’s 0.95% advance adds to the near 11% rally seen across the month of May with USDCOP falling to the lowest level since August 2022.
  • The moves come following the overnight below-estimate CPI print for May which appears to confirm the most recent central bank rhetoric that inflation has hit its turning point. The data has prompted more significant moves in IBR swap rates with the rally being exacerbated by finance minister Bonilla’s comments regarding the potential for rate cuts in the near future.
  • Swap rates have shifted lower by between 16-33bps across the IBR curve, and the moves are most notable at the 2-year segment of the curve, as both the inflation data and most recent political developments, bolster the relief rally.
  • As a reminder, many see the waning political support for President Petro as stalling his attempts to jettison the country’s conservative economic orthodoxy. Of note on Wednesday, Barclays strategists upgraded their recommendation on Colombia’s dollar debt to overweight from market weight, citing Petro’s political support crumbling. They wrote that “Petro’s capacity to pass reforms has declined with the erosion of his political capital”, indicating that fundamentals “remain unscathed and on a positive trajectory”.
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