Itaú BBA - Macro Scenario – Colombia: The end of the easing cycle

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Macro Scenario – Colombia: The end of the easing cycle

November 12, 2020

We cannot rule out further cuts ahead if the activity recovery underwhelms and inflation expectations retreat

For the version with all charts and tables, please open the attached pdf file

• 
The economy completed a second month without a mandatory quarantine, but the spread of the coronavirus accelerated during October, and street protests have returned. In all, the administration’s political capital is being eroded after a brief relief during the start of the pandemic, hindering the path of a much-needed tax reform.


• In spite of the challenging fiscal outlook, rating agencies have reaffirmed Colombia´s investment grade status. S&P and Fitch both kept the country’s sovereign credit rating at BBB- but retained the negative outlook. 

• While business sentiment and job recoveries were evident at the close of the third quarter of the year, the pace of economic recovery has underwhelmed, leading us to revise our GDP forecast to a 7% contraction this year (from -6%). Under the assumption that the economy remains open, jobs recover, and the benefits of the monetary stimulus materialize, we see a bounce-back to 4.7% next year (4.5% in our previous scenario).

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After an extensive easing cycle, the board of the central bank agreed to keep rates steady, at 1.75%. Given a change of guard at the central bank and the willingness to evaluate how the economy responds to past easing, we believe the rate-cut cycle has concluded.

João Pedro Bumachar
Vittorio Peretti
Miguel Ricaurte

For the version with all charts and tables, please open the attached pdf file



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