Itaú BBA - Monetary policy meeting in Colombia to take center stage

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Monetary policy meeting in Colombia to take center stage

Abril 30, 2020

We expect another 50bp rate cut, to 3.25%

Talk of the Day


The central bank holds its monetary policy meeting today, at which we expect another 50bp rate cut to 3.25%. Although general manager Echavarria has indicated that the board’s focus is on the liquidity measures that ensure the smooth functioning of the labor market, and is uncertain over how effective lower rates would be in curtailing the economic downturn, he also acknowledged that the board would lower rates as much as necessary during this crisis. We believe a lower policy rate would increase appeal of credit lines and provide relief on interest payments. 

Day Ahead: The institute of statistics will release the unemployment rate for March at 12:00 PM (SP time). Labor market developments in urban zones had been in line with a preceding period of activity recovery and elevated business confidence levels. However, going forward, the shutdown of the Colombian economy amid the coronavirus pandemic, would lead to a sharp loosening of the labor market. For March, we expect the urban unemployment rate to rise to 13.8%, 1.8pp higher than a year ago. Other than that, exports for March will be published, for which we expect at USD 2.6 billion, a 22.1% drop from last year, as the global slump is reflected in widespread export weakness. As a result, exports in 1Q20 would post a 5.8% drop (8.7% fall in 4Q19). Finally, as we mentioned above the central bank holds its monetary policy meeting.


The central government posted a BRL 21.2 billion primary deficit in March, better than our call and market’s estimate (at BRL 25 bn and 26 bn, respectively). Compared to our estimate, the surprise came from lower expenditure. Also, the government postponed the payment of judicial deposits (the so called “precatórios”) this year.  Accumulated over 12 months, the central government deficit reached BRL 89 bn in March (or -1.2% of GDP). The policy reaction to the coronavirus crisis will lead to a strong transitory deterioration in primary deficit in 2020. 

Coronavirus update: the latest official information from the Ministry of Health is that Brazil has 78,162 confirmed cases (up by 6,276 vs 5,385 yesterday), with 5,466 confirmed deaths (up by 449, vs 474 yesterday). Find our weekly COVID -19 monitor here.

Day Ahead: March’s national unemployment rate, will be released at 9:00 AM (SP time). We expect unemployment to reach 12.7% (increasing to 12.0% in seasonally-adjusted terms, from 11.5% in the previous month). This forecast assumes a constant participation rate – if the participation rate declines (which is a risk during the quarantine), the unemployment rate may turn out to be lower. Also, March’s consolidated primary balance will be released at 9:30 AM (SP time), for which we expect to post a BRL 19.6 bn deficit.


Day Ahead: The national institute of statistics (INE) releases activity indicators for March at 10:00 AM (SP time). Electricity generation slowed from 6.5% yoy to 2.1%, hinting at manufacturing slowing to 1.8%. Meanwhile, with car sales falling 36% yoy in the month, retail sales would drop 6.3%. INE will also release the national unemployment rate for the first quarter of the year. With the economy facing another shock on a global scale, further loosening of the labor market is anticipated despite efforts by the authorities to shoulder some of the labor costs for business. For 1Q20, we expect an unemployment rate of 8.7% (7.2% in 1Q19). Finally, the central bank will release the results of its bi-weekly trader survey


Day Ahead: The statistics institute (INEGI) will publish the flash estimate of Q1’s GDP, which we estimate to contract 0.9% YoY (from -0.5% in 4Q19). We expect both industrial production and services sectors to deteriorate due to the COVID outbreak. Using seasonally adjusted figures, we expect 1Q20 GDP to contract 0.5% QoQ (from -0.1% in 4Q19). Also, the Ministry of Finance (MoF) will publish the reports on economic activity, public finance and public debt as of the 1Q20.



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