- Colombia: The IMF conditions its Flexible Credit Line (FCL)
On Saturday, April 26th, the IMF announced they’ve conditioned Colombia’s USD 8.1 bn FCL on the completion of two processes: the Article IV consultation and the usual mid-term review of the FCL.
The Article IV consultation is taking longer than usual. In the most recent statement related to Article IV on April 18, the IMF highlighted that the increase in the deficit and public debt has been above expectations and reflects some concern as the international uncertainty has increased.
Although we think the Government wasn’t considering using the FCL, the IMF’s conditioning is a signal of lower confidence in Colombia and probably is a pressure for the Government to have a more specific plan for its public finances. Unfortunately, we don’t expect any plan to come before the publication of the Medium Term Fiscal Framework (due in mid-June).
The central bank usually considers the FCL a buffer that is complementary to other mechanisms such as international reserves. Given the IMF’s announcement, we think it could put on the BanRep’s table the discussion to increase the interest rate (we have to monitor this at Wednesday's meeting).
As for Colombian assets, risk premiums have been increasing significantly this year. We think that after the IMF announcement it is difficult to see this trend reverse but we have to wait for the government's response before anticipating a further widening in the risk premiums. For the Colombian Peso, we see current risks compatible with a macro-fundamental level of 4,350.
Regarding Monetary Policy:
- The IMF’s announcement fuels expectations for rate stability on the 30th.
- Recall that the central bank staff updates its macro scenario this week, so there may be a discussion on whether the current widening in risk premium is structural and whether that would result in an increase to the neutral rate estimates again.
- With all the above we expect a steady BanRep rate in April and the possibility of an upside revision to the neutral rate. If that happens, we think it will be difficult for BanRep to resume cuts soon, though we would maintain an expectation for cuts late in H2-2025, and a potential skew to the terminal rate of the easing cycle in 2026 between 7.50% and 7.00%.
—Jackeline Piraján
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.