- Colombia: BanRep minutes reveal differing assessments about economic recovery and future risks
- Peru: Minister of the Interior resigns after hosting Halloween party
COLOMBIA: BANREP MINUTES REVEAL DIFFERING ASSESSMENTS ABOUT ECONOMIC RECOVERY AND FUTURE RISKS
On Wednesday, November 3, the central bank released the minutes of its most recent monetary policy meeting held on Friday, October 29, in which the Board of Director’s decision to increase the benchmark rate by 50 bps to 2.5% was taken with a split vote (5–3). From the minutes, we would highlight that:
- The Board agreed that economic recovery sped up in the third quarter despite the third COVID-19 wave and earlier nationwide strike, notably led by robust private consumption. The Board also agreed that external conditions will remain positive for terms of trade. Both arguments led to an upside revision of the GDP growth to 9.8% for 2021 and 4.7% for 2022. On the inflation side, current shocks are showing to be more lasting than expected, prompting the staff to revise their forecast to the upside.
- Regarding the labour market, the Board expects the current positive momentum in the economic growth to be reflected in employment in the future.
- There was a consensus that the economy needs less monetary stimulus since the output gap is closing at a faster pace and maintaining the current stimulus would compromise the macroeconomic stability.
- The five members who voted for a 50 bps hike expressed that private consumption is getting a boost by a credit rebound and rates should increase to avoid potential imbalances. In the same vein, increasing inflation expectations are a source of concern since they reflect indexation effects. Additionally, they said that in increasing the monetary policy rate more this time would prevent the need for a more restrictive policy in the future.
- The two members who voted for a 25 bps hike said that uncertainty remains high and that the current recovery would come at the expense of a reduction in households’ savings. Additionally, employment and investment continue showing relevant lags and SMEs would be impacted by a harder hiking cycle. Moreover, a faster hiking cycle would impact negatively the credit recovery. Regarding inflation dynamics, they considered that the recent increase is a response to supply factors and should not be a source of higher concern.
Minutes revealed that despite the overall positive view on economic growth, there are varying levels of concern about the source of this growth but also regarding future risks. That said, the hawkish group expressed they are uncomfortable with the recent credit and inflation dynamics, while the dovish group is worried about the implication of a stepped hiking cycle would mean for the recovery. All in all, we expect BanRep to make a new 50 bps rate hike in the December’s meeting, as staff signaled the GDP gap would close faster and core inflation would close 2022 close to the ceiling of the target range. For 2022, we expect gradual hikes, closing the year at 5%.
—Sergio Olarte & Jackeline Piraján
PERU: MINISTER OF THE INTERIOR RESIGNS AFTER HOSTING HALLOWEEN PARTY
Peru’s Minister of the Interior, Luis Barranzuela, resigned on Tuesday night, after having come under intense criticism from the press and opposition parties pretty much since being sworn in on October 6. At the time of this writing, a new Minister of Interior has not been appointed. Although officially Barranzuela resigned, stating that he did so for the sake of “governability” (political stability), the Head of the Cabinet Mirtha Vásquez stated on social media that the decision had been made by President Castillo.
Barranzuela was a controversial figure since being appointed, due to claims that his performance when he was part of the police force had been questionable, and for charges of conflict of interest, since, until his designation, he had been the lawyer for Vladimir Cerrón (founder of the ruling party, Peru Libre) who is facing corruption charges. However, what actually triggered Barranzuela’s exit was a party/reunion he held at his home on Halloween, despite the Ministry of the Interior itself having banned such gatherings due to COVID-19. The Head of the Cabinet, Mirtha Vásquez, publicly reprimanded Barranzuela, and is likely to have pursued his ouster before President Castillo.
Barranzuela’s dismissal increases the likelihood that Congress will award the Vásquez Cabinet a vote of confidence, which is pending, and should be decided this week. Barranzuela’s permanence in the cabinet was the main point of contention for much of Congress. Barranzuela is not the only issue, however, so the vote of confidence is not quite a given, but his removal helps things considerably. Assuming, that his replacement is seen as an acceptable pick. The new designation should be announced very shortly, as the cabinet is scheduled to present itself before Congress today, Thursday, unless the session is postponed to give the government more time.
—Guillermo Arbe
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.