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Scotiabank Say New Info Could Skew BanRep Decision To Hawkish Side

COLOMBIA
  • Strong economic performance and core inflation reaching its highest level since 2003 could trigger a higher movement from the Central Bank. New information could skew the decision to the hawkish side as private consumption remains strong and inflation deviates from the Central Bank target even in a two-year window.
  • The new government will have the opportunity to change two board members until 2025; that said, Scotiabank maintain their expectation of an independent central bank acting in line with traditional rules, and a hiking cycle reaching a terminal rate at 8.50% in July 2022.
  • Regarding markets, the presidential results point to new information that impacts Scotiabank’s current FX projection. On the Tuesday after the elections, the FX reversed the gains shown after the first round, indicating that a new premium was structurally priced in the USDCOP.
  • As a result, Scotiabank revised their forecast FX path for 2022 and 2023. They now expect the exchange rate to hover around 3,980 pesos in the second half of 2022 and around 3,900 in 2023.
  • Despite high commodity prices, they think that a stronger US dollar from Fed tightening, and some degree of political risk premium will prevent the FX from appreciating significantly in the medium term.
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