Near-Term Potential For FX And Equities

As expected, the Colombian central bank (BanRep) hiked the overnight lending rate by 25 basis points (bps) to 3.50% in Friday's meeting, reaffirming our constructive medium-term stance towards the peso. While the latest inflation reading came in below expectations, at 3.2% y-o-y in February, hawkish comments from Chairman José Darío Uribe imply that the normalisation of monetary policy is set to continue, in line with our forecasts for another 125bps of hikes to 4.75% by end-2011. As a result, we believe that appreciatory pressure on the COP should start to pick up over the coming quarters.

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