![]() ![]() Weaker oil prices through the rest of the year will also weigh on the peso. Based on our forecasts of an additional rate hike by the US Federal Reserve and a rate cutting cycle by Colombia’s Banco Central de la República in H223, we expect that the differential will continue narrow in the US’s favour, settling at 675bps by end-2023. The nominal interest differential between the two markets has moved in favour of the US, falling from 825bps higher for Colombia in January 2023 to 800bps in May. We also expect that a less favourable interest rate differential for Colombia vis-à-vis the US will act as a headwind to the peso in 2023. As of June 30 the COP stood at a spot rate of COP4,180/USD, making it the best performing major currency in the Americas in the year to date. But as it became clearer that Petro would also be losing his majority coalition in congress, effectively killing his left-leaning reform agenda, the COP rallied heavily, appreciating 14.5% between April 28 and June 22 before paring back some of these gains ( see charts below). ![]() Initially, the COP weakened as the exit of moderate ministers like Economy Minister José Antonio Ocampo and Agriculture Minister Cecilia López spooked investors. The revision largely reflects President Gustavo Petro’s surprise cabinet reshuffle on April 25, two weeks after our last peso forecast piece. Our new forecast is largely in line with Bloomberg consensus of COP4,300/USD. We have substantially revised up our Colombian peso forecast for end-2023 to COP4,350/USD, averaging COP4,500/USD for the year, based on our view that currency will retain most of the gains they made in Q223. ![]()
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