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Executive Summary:
- BanRep are widely expected to raise their overnight lending rate by 25bps to 2.00%.
- Recent commentary has left few doubts that the governing board will initiate policy tightening at this meeting, with the majority expecting a gradual hiking path.
- However, given the sharp rise in headline inflation, coupled with a strong economic recovery, there may be risks of the MPC taking even bolder action.
Click to view the full preview: MNI BanRep Preview - September 2021.pdf
Headline Inflation Continues Ascent Past Upper Tolerance Band
Annual headline CPI for August rose to 4.44%, above expectations of 4.2%. This represents the highest print since April 2017, extending the breach above the upper tolerance band of the inflation target.
While the board may be concerned with rising headline inflation contaminating inflation expectations, Core CPI close to target should temper at least some of the anxiety.
Economic activity continues to surprise to the upside with the latest data printing 14.3% versus a 13.1% median estimate. President Duque's latest remarks suggest the economy will grow over 7% in 2021. This sentiment was echoed even more recently by Finance Minister Restrepo, backing this year's GDP growth to surprise on the upside. Constant mention by officials relating to the lagging recovery of the labour market appears to be the key indicator to maintain a somewhat accommodative stance.
Markets
Despite a volatile trading range of 3740-4045, USDCOP finds itself in very similar territory to where the pair resided at the July meeting around 3840. The IBR swaps curve has shifted higher with tenors between 9months and 20 years rising between 80-110 basis points. Greater than expected tightening at this juncture, or a considerably more hawkish tone will likely see pressure in the front end of the curve as market participants adjust their expected path for short-term tightening of policy. JPMorgan are expecting a 50bps increase at this meeting, describing the potential front-loading of hikes as a down-payment that could then allow BanRep to more comfortably ease into a more gradual pace thereafter.
MNI/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.