Lower for longer for sure
The Central Bank was quick to act during the first days of the COVID lockdown, so Colombia took the lead in implementing one of the region’s first QE programs to prop up financial sector liquidity. The Bank was also instrumental in negotiating FCL enlargement with the IMF. Between March and September, intervention rates were cut by 250 basis points; some think it could have been more. But, as the Bank board voted unanimously to stay put in October, leaving the policy rate at 1.75%, barring a new spike in cases that could trigger a new wave of lockdowns, the likely next Bank move will be a hike.
Colombia is a shining star in the region – or the least ugly of the bunch. Therefore, all the noise we expect next year could deter a hike, but could also affect foreign investor sentiment. Slowly starting to hike at the end of 2021 would be (partial) insurance against negative investor sentiment toward Colombia.
Since the 1960s, Colombia has seen cycles of eight to 10 years between recessions. And except for in 1999, recessions were typically quite mild. Both of those traditions have been challenged: recession has arrived just three years after the last one, and it’s much harsher than the recession of 1999. Yet the Colombian economy appears quite resilient, and to be bouncing back, a quarter or two after the trough.
Luckily, unemployment has quickly fallen, to 15.8% from a peak above 20% in 2Q. Government’s optimistic forecasts point to a 13% rate at the end of 2020, and a return to “normal,” of 9% to 12%, by the end of 2021.The weaker Colombia’s incumbent government, the earlier the political campaigns start to replace it. It mimics our bodies’ immune system: If the incumbent does not seem effective in solving the most salient political, social and economic problems, the political system starts looking for the cure. So, practically speaking, the current presidential campaign started in mid-2020, in the midst of COVID-19, lockdowns, recession and a sickening population.
Three possible big coalitions could emerge around mid-2021: 1) the leftist one, to support Gustavo Petro, likely to attract the FARC Party and followers of former president Ernesto Samper; 2) The center-left, comprising the Green Party of Sergio Fajardo, the Liberal Party of former president César Gaviria and the peace-centered friends of ex-president Juan Manuel Santos; and 3) Ex-president Álvaro Uribe’s Centro Democrático, the Conservative Party and probably Partido de la U and Cambio Radical. Good old Colombia will likely prevail against the bogeyman of extreme-leftism or rightism that is characterizing most presidential elections around the world.
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