Macroeconomic Conditions and Monetary Outlook - Roberto Steiner Board Member Webinar Credicorp Capital August 19, 2021 - Banco de la ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Macroeconomic Conditions and
Monetary Outlook
Roberto Steiner
Board Member
Webinar Credicorp Capital
August 19, 2021
1
*Opinions presented herein do not represent those of the Central Bank of Colombia nor of its Board of Directors.EXTERNAL CONTEXT
Content MONETARY POLICY STANCE
POLICY CHALLENGES• External liquidity remains abundant, but Colombia’s risk premia has risen following a more challenging
and uncertain fiscal situation
5-year CDS
400
350
300
250
Basis points
200
150
100
50
0
Colombia Chile Brazil Peru Mexico
Source: Bloomberg 3• Portfolio flows to emerging markets are trending lower
• Flows to Colombia’s public debt market remain positive despite the lower credit rating
Portfolio flows to emerging markets Foreign flows to the local TES market
120 6000
80 4000
40 2000
USD billion
COP Billion
0 0
-40 -2000
-80 -4000
-120 -6000
Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21
Emerging Asia Latin America Emerging Europe
Africa and Middle East Total Spot Forward Total
Sources: IIF and Banco de la República. 4• Progress in the vaccination programs and supportive fiscal and monetary
policies in advanced economies have improved the outlook for global growth
• The recovery path is likely to be heterogeneous across countries, reflecting,
among other, differences in the vaccination process
IMF Economic Growth Projections
(% change)
2022 Projection Difference from January WEO Update
World Output 4.9 0.7
Advanced Economies 4.4 1.3
United States 4.9 2.4
Euro Area 4.3 0.7
Japan 3.0 0.6
China 5.7 0.1
Emerging Markets 5.2 0.2
Brazil 1.9 -0.7
Mexico 4.2 1.7
5
Source: IMF – World Economic Outlook. July 2021.• Oil prices have risen to pre-pandemic levels, but there is uncertainty surrounding the duration of a high
price scenario
Oil prices Forecast for Oil prices
110
100
100
80 90
60 80
Dollars per barrel
70
Dollars per barrel
40
60
20
50
0
40
WTI Brent
-20
30
-40 20
-60 10
May-17 Dec-17 Jul-18 Feb-19 Sep-19 Apr-20 Nov-20 Jun-21 19 Q2 19 Q4 20 Q2 20 Q4 21 Q2 21 Q4 22 Q2 22 Q4 23 Q2
90% 60%
30% April Monetary Policy Report
July Monetary Policy Report
Sources: U.S. Energy Information Administration and Banco de la Republica – Monetary Policy Report July 2021 6CONTEXT
Content MONETARY POLICY STANCE
POLICY CHALLENGES• The monetary policy response is supported by a sound
macroeconomic policy framework:
1. Monetary policy is guided by a fully-fledged inflation targeting regime
with exchange-rate flexibility
2. Adequate external buffers
3. Adequate financial supervision and regulation
4. A Medium-Term Fiscal Framework seeking to achieve a sustainable path
for public debt, which has been significantly challenged on account of the
pandemic
8• The high credibility of the Central Bank maintains inflation expectations close to the target
6% Inflation and inflation expectations Inflation measures
10 9,81
5% 8
6
4% 3,97%
4 3,97
3,18%
3% 3,14%
%
2 2,05
2%
0
Core inflation (excluding food and regulated items)
1% One-year ahead inflation expectations
-2 Food inflation
Two-years ahead inflation expectations
Headline inflation
Headline inflation
0% -4
Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21
Source: Banco de la República (monthly expectations survey) and DANE.
9• Various transitory shocks recently caused an increase in inflation : a national strike, increased commodity
and import prices, disruption of international value chains and higher global logistical costs
• Inflation is now expected to be above target by the end of this year (3.7% - 4.9%) and should converge to
the target in 2022
6 Headline Inflation
5
4
3
%
2
1
90% 60% 30% April Monetary Policy Report July Monetary Policy Report
0
19 Q2 19 Q4 20 Q2 20 Q4 21 Q2 21 Q4 22 Q2 22 Q4 23 Q2
10
Source: Banco de la República – July 2021 Monetary Policy Report.• Currency mismatches are low, allowing the exchange rate to become the first line of defense against
external shocks without creating financial stability concerns. Unhedged FX denominated debt of the
corporate sector has not changed substantially and nowadays represents only 5.8% of GDP
Debt of the Private Corporate Sector as % of GDP, by FX Hedge*
60
1,77
1,30 5,8%
50 2,74
4,73
4,12
40
4,78
% of GDP
30
20
34,77
10
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Local currency debt Exporters' debt
Non exporters' debt with hedge Debt of firms with FDI - unhedged
Other External suppliers in foreign currency
External leasing in foreign currency
Source: Banco de la República – Financial Stability Report 2021-I. *Fx debt from suppliers and leasing is not available by ID, and it is not posible to identify if this debt has an FX hedge. 11• External liquidity levels are adequate
International Reserves and the Flexible Credit Line
220%
200%
180%
160%
140%
Adequate level of reserves
120% suggested by the IMF
100%
80%
60% Flexible Credit Line
40%
International Reserves
20%
0%
Source: Banco de la República and IMF. *The reduction observed in December is explained by the disbursement of USD 5.4 billion from the FCL to the government.• As a result of high credibility and contained currency mismatches, the CB has been able to
maintain a highly counter-cyclical stance
Real ex-ante policy interest rate Real Interest Rates*
6% 4%
5%
3%
4%
2%
3%
2% 1%
1%
0%
0% 2012 2013 2014 2015 2016 2017 2018 2019 2020
-1% -1%
-2%
-2%
Jul-05
Jul-07
Jul-09
Jul-11
Jul-13
Jul-15
Jul-17
Jul-19
Jul-21
Mar-06
Mar-08
Mar-10
Mar-12
Mar-14
Mar-16
Mar-18
Mar-20
Nov-06
Nov-08
Nov-10
Nov-12
Nov-14
Nov-16
Nov-18
Nov-20 Neutral real interest rate Real ex-ante policy rate ⅟
Source: Banco de la República – July 2021 Monetary Policy Report. *Estimate of the neutral real interest rate. ⅟Real ex-ante interest rate is calculated using one-year ahead inflation
expectations obtain from surveys. 13• Financial intermediation has supported the transmission of monetary policy
• The growth of the loan portfolio has increased recently, and the lower monetary policy rate has
been transmitted to most interest rates in the financial system
Loan portfolio – Real Annual Growth Rate Transmission of interest rates - change in interest rates
20 since march 2020
-268,87 Commercial loans (preferred)
15
-258 DTF
10
-250 Monetary policy rate
5 5,6
%
-227,32 Commercial loans
2,2
0,9
0 Commercial loans (ordinary)
(1,0) -213,24
-5 (4,6) -131,31 Consumer loans
-83,33 Credit cards
-10
Jun-18
Jun-21
Apr-19
Jun-19
Apr-20
Jun-20
Apr-21
Dec-18
Dec-19
Dec-20
Feb-19
Feb-20
Feb-21
Oct-19
Oct-18
Oct-20
Aug-18
Aug-19
Aug-20
-300 -250 -200 -150 -100 -50 0
Basis points
Total Commercial Consumption Mortgages Microcredit
14
Source: Office of the Financial Superintendent. Calculations by Banco de la República.• The loan portfolio deteriorated in line with the economic slowdown
• The Debtor Support Program (PAD) has benefitted loans for COP 37.6 trillion (7% of the total loan portfolio).
There is uncertainty surrounding the future of non-performing loans after the expiration of the PAD and
financial institutions have increased provisions to manage this risk
Non-performing loans - Real Annual growth rate Loan portfolio in the Debtor Support Program (PAD)
80
60
Type of loan Amount in PAD Amount in PAD (%
(COP trillion) of loan portfolio)
40
Commercial $ 13,3 4,8%
20
Consumption $ 19,4 11,8%
%
0
-20
Microcredit $ 1,04 7,8%
-40 Mortgages $ 3,8 4,7%
-60 Total $ 37,68 7,05%
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Jul-17
Jul-18
Jul-19
Jul-20
Jan-18
Jan-19
Jan-20
Jan-21
Oct-17
Oct-18
Oct-19
Oct-20
Total Commercial Consumption Mortgages
Source: Office of the Financial Superintendent; calculations by Banco de la República.
15• Besides the higher provisions, liquidity and solvency levels of financial intermediaries remain well
above regulatory limits
Liquidity Risk Indicator (LRI) Solvency Ratio of Credit Establishments
450 30
400
25 21,1
350
20
300
212,2
250 15
200 Solvency ratio= Tier 1 capital / Risk weighted assets+ (11,11)*Marketrisk
10
150
LRI = liquid assets / net liquidity requirementsover 30 days
5 Due to regulatory changes the series before January 2021 is not comparable
100
50 0
Jun-15 Jun-17 Jun-19 Jun-21 jun-11 jun-13 jun-15 jun-17 jun-19 jun-21
LRI Regulatory Minimum Total solvency ratio Regulatory minimum
Source: Office of the Financial Superintendent; calculations by Banco de la República.• The expansionary policy has supported the economic recovery. Growth figures for Q1 surprised on the upside and the effects
of the shocks in the second quarter (social unrest and the national strike) appear to have been limited. Accordingly, the CB
staff increased this year’s growth forecast to 7.5% from 6%, in a range of 6.1% to 9.1%
• The convergence of economic activity toward pre-pandemic levels continues and output is now projected to reach 2019 levels
by the end of 2021
GDP Growth⁺ Output Gap*
2
10
1
8
0
6
-1
4
-2
2
-3
%
%
0 -4
90%
-2 60% -5 30%
30% 60%
-4 -6
April Monetary Policy Report 90%
-6 July Monetary Policy Report -7 April Monetary Policy Report
July Monetary Policy Report
-8 -8
19 Q2 19 Q4 20 Q2 20 Q4 21 Q2 21 Q4 22 Q2 22 Q4 23 Q2 19 Q2 19 Q4 20 Q2 20 Q4 21 Q2 21 Q4 22 Q2 22 Q4 23 Q2
17
Source: Banco de la Republica – Monetary Policy Report July 2021. ⁺Seasonally adjusted series. *Difference between the observed GDP and potential GDP obtained from
the 4GM model.• Second quarter GDP growth was 17% while the central bank’s staff was expecting 17,3%*
• The median of analysts’ expectations for Q2 GDP growth was 14,6%. This is a very good outcome
given the shocks faced during that period (National strike and social unrest)
GDP annual growth rate*
20%
17%
15%
10%
5%
0%
I II III IV I II III IV I II
-5% 2019 2020 2021
-10%
-15%
-20%
Source: DANE and Banco de la República (expectations survey). * Seasonally adjusted series.
18• The labor market has partially recovered, but there remains significant slack. Unemployment
levels are especially high among women and the younger population
• Forecasts from the Central Bank’s staff suggest a moderate decline of the unemployment rate
during the remainder of 2021
Unemployment rate Forecast for the National Unemployment Rate
%
%
25
20
16.3
15 15,1
10
5
Sep-17
Sep-18
Sep-19
Sep-20
Mar-18
Mar-19
Mar-20
Mar-21
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Dec-17
Dec-18
Dec-19
Dec-20
13 Metropolitan areas National
19
Note: seasonally adjusted series.
Source: DANE and Banco de la República – Labor Market Report August 2021• Of course, not everything is cyclical; Colombia has historically shown high unemployment rates,
reflecting structural rigidities in the labor market
Unemployment rate
18
15,4
16
14,7
15
14,3
13,67
13,2
14
12,8
12,4
11,51
12
10,4
1990-2000
9,43
9,6
8,82
9,2
10 2001-2010
8,31
%
7,64
7,19
8
2011-2019
6,91
8
6,8
6,8
6,26
5,85
6,1
2020
5,61
5,8
5,5
6
6
4,71
4,8
4,49
4,34
4,30
March 2021
4,11
4,3
4,2
4,0
3,55
3,8
4
4
2
0
Colombia Chile Mexico Brazil EE.UU UK Polonia Indonesia
Source: World Bank and National Statistical Offices
20• Despite better terms-of-trade, the external deficit is expected to increase this year to 4,5% of
GDP on the back of a higher domestic demand and profit remittances from foreign companies
Current Account
(% of GDP)
-1
-2
-3
-4
% of GDP
-5
-6
-7
-8
2018 2019 2020 2021 2022
90% 60% 30% April Monetary Policy Report July Monetary Policy Report
21
Source: Banco de la República – July 2021 Monetary Policy ReportCONTEXT
Content MONETARY POLICY STANCE
POLICY CHALLENGES• There is uncertainty regarding:
– External financial conditions. Liquidity in advanced economies remains abundant but a faster than expected
normalization of monetary policy in advanced economies is a risk
– Risk perception about Colombia, given the social tensions, the political uncertainty and the fiscal challenges
that the country is facing
Slope of the U.S. Treasuries Curve 5-year CDS
180 250
160
200
140
120
150
Puntos básicos
100
80
100
60
40 50
20 Colombia Latam average*
0
0
Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21
5-10 year spread 5-30 year spread
Source: Bloomberg. * Simple average of 5-year CDS for Chile, Brazil, Peru and Mexico
23• The pandemic caused a significant increase in public debt
• Fiscal measures are required to stabilize and then reduce the public debt ratio
• Funding for the Government remains adequate, albeit at a higher cost on account of a higher risk
perception
Gross Debt of the National Government Central National Government Fiscal Balance
(% of GDP)
80 2
0,8 0,9 0,8 0,7
68,6 69,1 69 0,7 0,7 0,7
70 66,8 68,2 67,2
64,7 66,2 65,3 64,5 0,4 0,3
63,8 63,2 0
-0,3
60
-1,3
49,3 50,3 -2 -2,5
50 -2,7
-2,5 -2,6 -2,7 -2,6
-3,5 -3,1 -2,8 -2,7
40 -4 -3,8
%
-4,9 -4,7
30 -5,3
-6
20 -7 Fiscal balance
-8 -7,8 Primary balance
10 -8,6
0 -10
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Source: Ministry of Finance – Medium Term Fiscal Framework 2021
24• While Colombia´s monetary policy ought to remain
supportive in the medium-term, the recent behavior of
inflation & inflation expectations, the narrowing of the
output gap, the widening of the fiscal & external
imbalances, and the prospect of less benign global
financial conditions, suggest that monetary policy could
soon become less expansionary than in the recent past.
• How soon, how gradual and by how much would the
policy rate of interest rise will depend on the information
that becomes available in the coming weeks.
25You can also read
