The May 29 presidential election in Colombia represents a risk to the Colombian peso, according to analysts at CIBC. They forecast USD/COP at 4200 by the end of the first quarter and at 4100 by mid-year.
“Banrep increased the overnight rate by 100 bps to 4.00%, against market consensus and our forecast for a 75bps increase. Banrep left the door open for similar rate increases in the short term as inflationary pressures remained in place and both core and headline inflation are above target.”
“We expect Banrep to increase the overnight rate by another 100bps in March and we revised our terminal rate forecast for Q3 to 7.50% (previously 7.25%).”
“Looking at USD/COP, although we recognize that the global supply shock and recent upside surprises to headline inflation suggest a front-loading of the tightening cycle, current political dynamics should prevent a sustained appreciation of the COP for most of H1.”
“The 2022 legislative and presidential election cycle is marked by a clear move to the left in the region, while locally, the protests at the end of 2019 and in early 2021 have supported the increase in popularity of leftist candidates (…) current local and regional trends suggest a much greater representation of the left in the next four years, adding another layer of risk ahead of the May 29 presidential election.”
“We anticipate USD/COP moves that are similar to, if not greater than, those experienced in Chile and Peru in 2021, bringing USD/COP above its historical highs before the end of Q1. Hence, we maintain our long.”
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