Scotiabank on Banrep - Decision Could Result in Some Pressure On COP

Scotiabank:

• In the press conference, Governor Villar stated that medium-term inflation expectations remained anchored. He argued that expectations reflect the current international shock and also future inflation that will be closer to the target, which points to credibility in the central bank. That said, Governor Villar reiterated that the central bank will pursue a gradual process of inflation reduction.
• All in all, BanRep maintains its hiking pace of 100 bps with a strong majority and dovish guidance. Despite the improved outlook for economic activity and increased upside inflation risk, the Board preferred to take a cautious approach, arguing that uncertainty remains high and that the effect of the current decision will be reflected in the future. The Board believes that the current pace will ensure a gradual return to the inflation target range in the medium term.
• Scotiabank Economics expects the Board’s decisions to continue to be “data dependent” and that the terminal rate will be determined by trend inflation. Meanwhile, the decision could result in some pressure on the FX, as financial markets were pricing a more hawkish move.