Colombia’s current account deficit has, somewhat surprisingly, widened this year despite the boost to the country’s terms of trade from high oil prices, and now stands at an alarming level. And the funding of the deficit has shifted towards more volatile banking sector flows, leaving the economy and the peso vulnerable to tighter external financing conditions. With risk appetite set to stay weak, we expect the peso to remain under pressure and the central bank to keep monetary policy tight well into next year.
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