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Scotiabank on BanRep: Lack Of Consensus To Continue

COLOMBIA
  • The majority of analysts expect the Board to increase the policy rate by 25 bps to 2.25%, which is aligned with Scotiabank's own projection.
  • Since the last meeting, macro data for August showed a reduction in the core inflation print as well as inflation expectations remaining anchored. On the economic growth side, however, August's economic activity showed that recovery still faces challenges, leading them to think that the Board is not getting significant hawkish data to more evidently accelerate its hiking cycle.
  • Key points to have in mind ahead of Friday's BanRep vote:
  • The Board will have updated forecasts from the Central Bank's staff for GDP, inflation, FX, implicit policy rate, and the balance of payments, which will have important information on how BanRep's staff is thinking about the normalization of the policy rate. Scotiabank expect the staff to signal a steeper hiking cycle, pointing to a higher terminal rate, due to the output gap closing at a faster pace, and in the same vein inflation forecast would be revised to the upside due to the indexation effect ahead of 2022.
  • Scotiabank expect the hiking cycle to continue at a 25 bps pace for now. That said, breakeven inflation deserves monitoring, although recent increases are likely due to market dynamics and not necessarily reflecting structurally higher inflation expectations. Therefore, they affirm their expectation of policy rate closing 2021 at 2.50% and 4.50% by the end of 2022.
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