5 Mar 2015
Neutral bias persists on the Colombian peso – BAML
FXStreet (Edinburgh) - In the view of analysts at BAML, the outlook for the Colombian peso remains neutral so far.
Key Quotes
“The large decline in oil should generate a sharp growth deceleration. The economy should decelerate by at least three percentage points of GDP as a result of the adverse terms of trade shock. In fact, international evidence suggests it would be highly improbable for Colombia to go through a shock of this magnitude without suffering at least a major slowdown in growth”.
“While pass-through effects from depreciation may contribute to keeping headline inflation high, most board members appear to agree that exchange rate adjustments to terms of trade shocks imply only transitory effects on inflation and thus should not affect the monetary policy reaction”.
“We are neutral the Colombian peso. The exchange rate has depreciated significantly to accommodate a large negative terms of trade shock, but our models estimate the exchange rate is still overvalued by around 25% given external deficits. The central bank suspended its dollar purchase program and we expect it to start easing monetary policy in 1Q as the economy slows down”.
Key Quotes
“The large decline in oil should generate a sharp growth deceleration. The economy should decelerate by at least three percentage points of GDP as a result of the adverse terms of trade shock. In fact, international evidence suggests it would be highly improbable for Colombia to go through a shock of this magnitude without suffering at least a major slowdown in growth”.
“While pass-through effects from depreciation may contribute to keeping headline inflation high, most board members appear to agree that exchange rate adjustments to terms of trade shocks imply only transitory effects on inflation and thus should not affect the monetary policy reaction”.
“We are neutral the Colombian peso. The exchange rate has depreciated significantly to accommodate a large negative terms of trade shock, but our models estimate the exchange rate is still overvalued by around 25% given external deficits. The central bank suspended its dollar purchase program and we expect it to start easing monetary policy in 1Q as the economy slows down”.