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Morgan Stanley Economists Expect BanRep To Deliver A 125bp Hike

COLOMBIA
  • Morgan Stanley economists expect BanRep to deliver a 125bp hike, but have recently noted some downside risks to this forecast, as the March inflation print only surprised mildly to the upside. MS note that market pricing for the coming meeting is roughly ~110bp, suggesting that the market is assigning a 40% probability of a 125bp hike over a 100bp one.
  • MS will be keeping an eye on the vote split for any signs of a more hawkish shift, but we do not think that the data released since the last meeting necessarily warrant such a shift, especially taking into account BanRep's relatively more cautious reaction function.
  • However, amid this relatively more cautious central bank approach, Colombia continues to offer the lowest real policy rate in the region, posing some headwinds for the currency. As such, MS continue to prefer playing a relatively less hawkish central bank via FX (versus rates), particularly in light of expensive valuations, an unattractive carry profile and ongoing risks around what could be a highly polarised election, with non-negligible risks of an unorthodox shift. MS stay long USD/COP.
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