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Morgan Stanley On BanRep: See 50bps Hike At October Meeting

COLOMBIA
  • Their economist expects BanRep to deliver a 50bp hike and bring the policy rate to 2.50%, while the market is pricing in ~30bp, suggesting an expectation for a smaller move.
  • Given the split board and recent upside surprises in data, MS think that the market is underestimating the potential for BanRep to accelerate the pace in the coming months, which would also be in line with the broader pattern we have seen among EM central banks in the latest cycle.
  • As such, they continue to recommend 1s5s COPxIBR flatteners, particularly as the spread remains one of the highest in EM, surpassed only by South Africa's, where the hiking cycle has not begun yet. They continue to target 100bp.
  • MS also maintain a constructive view on COP and stay short ZAR/COP, as the peso should broadly outperform other metal exporters, given still attractive valuations, supportive oil prices and the expectation for more USD sales by the Treasury into year-end.
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