Freeze on Colombia Rates Expected

Market consensus points to Colombia’s central bank keeping its monetary policy rate intact at 3.50% today, although many see a hike coming in 2010. Bank of America Merrill Lynch sees a pause until Q2 2010. “Cutting rates to curb COP strength, setting new inflation targets and conducting monetary expansion through the purchase of up to COP3.00tn ($1.56bn) of USD and TES bonds leads us to conclude that an earlier hike is possible only if activity and inflation turn upward,” it says. Morgan Stanley expects the central bank to hike interest rates by 200bp to 5.5% in 2010, and forecasts that domestic recovery and an improvement in global markets will have more influence on rates than restrictions on trade imposed by Venezuela. Colombia-based research firm Corredores Asociados, meanwhile, says there is a chance for the central bank to cut the rate today if industrial production and retail sales deteriorate by a higher rate than the expected 3.0% and 4.3%, respectively.