Colombia: Expansionist Policies Buoy Risk-Taking Tone

Apr. 10, 2019 6:30 AM ETGXG, EC, CIB, ICOL, NQCO1 Comment
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Summary

  • Investors in the week ahead will receive updates on Colombia’s economy, including industrial production and retail sales, amid continued risk appetite in many emerging market countries.
  • Colombia, as with most nations, has been contending with slowing global growth, albeit with an upside to financial conditions as central bank monetary policy remains accommodative.
  • At its latest monetary policy meeting in late March, the Banco de la República elected to maintain its benchmark interest rate at 4.25%, a level they considered “moderately expansionist.”.
  • Meanwhile, the recent course of monetary policy in the U.S. has generally stoked investors’ fervor for riskier assets.

Emerging Markets: The Week Ahead (Apr 8-12)

Investors in the week ahead will receive updates on Colombia’s economy, including industrial production and retail sales, amid continued risk appetite in many emerging market countries.

Colombia, as with most nations, has been contending with slowing global growth, albeit with an upside to financial conditions as central bank monetary policy remains accommodative.

The Banco de la República, Colombia’s central bank, anticipates average growth for its trading partners in 2019 to come in at around 2.3% -- “somewhat lower this year than in 2018.” However, it noted that international financial conditions should be more favorable for emerging economies than those considered in its previous report.

At its latest monetary policy meeting in late March, the Banco de la República elected to maintain its benchmark interest rate at 4.25%, a level they considered “moderately expansionist.”

According to Fitch Solutions, Colombia's central bank will likely hold its benchmark interest rate steady in the coming months before beginning a rate-hiking cycle in the second half of 2019.

Fitch expects the central bank will commit to its accommodative policy stance in the short-term to support economic activity absent upside pressure on prices. They added that they think Colombia’s benchmark interest rate will end 2019 and 2020 at 4.75% and 5.00%, respectively, with inflation averaging 3.4% year-on-year in 2019 and 3.3% in 2020.

The Fed resuscitates risk-taking

Meanwhile, the recent course of monetary policy in the U.S. has generally stoked investors’ fervor for riskier assets.

The Federal Reserve’s decisions to maintain the target range for the federal funds rate at 2.25-2.5%, with no plans in 2019 to hike interest rates further, as well as cease other quantitative tightening measures, had spurred a plunge in government bond yields, which effectively helped to reignite a decent degree of risk appetite.

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Interactive Brokers' Traders Insight is a free online blog drawing together financial market commentary from an array of industry contributors. Exchanges, mutual funds, investment companies and IB analysts provide coverage across stocks, options, futures, forex and fixed income.  Visit: Interactive Brokers Group (https://www.interactivebrokers.com) Contact: ibti@interactivebrokers.com

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