LONDON/BOGOTA (Reuters) -Colombia’s incoming finance minister Ricardo Bonilla and President Gustavo Petro sought to calm the market on Thursday as international bonds and the peso currency suffered following the surprise ouster of Bonilla’s predecessor.
Petro named Ricardo Bonilla to the post in a Cabinet reshuffle on Wednesday, replacing Jose Antonio Ocampo, and sending the peso and the stock exchange down.
The currency was down 3.29% to 4,675 to the dollar during trading on Thursday, its lowest level in a month.
The premium demanded by investors to hold the country’s international bonds soared by 22 basis points to 431 bps, JPMorgan data showed.
“Of course we will maintain the fiscal rule,” Bonilla told Caracol Radio, referring to a 2011 measure which imposes policy constraints to block deterioration of public finances.
The fiscal deficit and the current account deficit must continue to be reduced, he added, for the country to have more financial autonomy.
Bonilla achieved a budget surplus and improved Bogota’s risk outlook when he was the city’s finance secretary and Petro was mayor, Petro tweeted, adding the central bank will remain independent.
Ocampo, who will remain in post for several days, will represent the government at the board’s meeting on Friday, where the market is divided on whether policymakers will hold or raise the interest rate.
Bonilla said he expected a hold.
Though the market was eager for Ocampo to remain, the fracturing of Petro’s congressional coalition over a health reform may clip the president’s reformist wings.
“The dumping of finance minister Ocampo, seen as an anchor of economic stability…is negative news,” said Alejandro Arreaza at Barclays. “But it also reduces the tail risk of radical reforms.”
Despite the tumble on Wednesday, Colombia’s peso is in the top three emerging market currencies year to date, up over 4% since the start of 2023.
The risk premium that had materially weighed on Colombian assets in the last three months of 2022 had narrowed recently, said Diego Pereira at JPMorgan, though the incomplete adjustment makes asset prices very vulnerable to sudden changes in risk aversion.
“Uncertainty on fiscal policy ahead and the commitment to the fiscal rule would likely again be tested by the market,” Pereira said.
(Reporting by Karin Strohecker in London and Nelson Bocanegra in Bogota; Writing by Karin Strohecker and Julia Symmes Cobb; Editing by Mark Porter, Jonathan Oatis, Alexandra Hudson)
