Colombia peso falls as Morgan Stanley cuts GDP projection

morganstanley - Columbia peso copy


The Colombian peso dropped with oil as Morgan Stanley said that measures to tackle the current account deficit and inflation will end up lowering growth.
The currency, which last week rose to the highest level since November, dropped 0.8 percent to 3,177.58 per U.S. dollar at 11:37 a.m. in Bogota. Oil, the country’s biggest export, fell from a three-month high as Iran said it would raise output to pre-sanctions levels before talking about production limits.
Morgan Stanley lowered its growth forecast for 2016 to 2.1 percent from 2.7 percent saying policy measures to slow inflation and close the current-account gap will end up cutting growth. The central bank will raise the benchmark rate to 6.75 percent in next two months and will keep it higher for longer than previously forecast, only cutting it to 6.5 percent by year-end, up a full percentage point from the previous forecast, Morgan Stanley said.
“Policymakers’ expectations for slightly stronger growth topping 3 percent, a narrowing current-account shortfall and rapidly falling inflation do not seem to add up,” Fernando Sedano, an economist at Morgan Stanley, wrote in the report to clients. “Instead, policymakers face a difficult set of trade-offs to put the economy on the right path.”
In a separate report, Morgan Stanley said it expected further depreciation in Chile and Colombia, which are major commodity exporters, and lowered its recommendation on Colombia sovereign rates to underweight from market-weight.

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