Andeans 2H26: Political reset meets constraints

Research evidence excerpt

Andeans 2H26: Political reset meets constraints

an April agreement to pause tighten- base case is for rate adjustments to begin early 4Q, with the

ing. Even so, tighter financial conditions and improved risk policy rate converging to 5.25% next year, though risks are

sentiment following the first presidential round helped pre- skewed towards an earlier tightening.

vent a further drift in inflation expectations.

In Colombia, the incoming administration faces the challenge

Figure 4: Headline CPI of advancing fiscal consolidation without a strong political %oya

16 Chile Colombia Peru mandate. The narrow electoral outcome constrains the scope

14 for front-loaded fiscal adjustment, pointing instead to a more

12 gradual path, which would also have an impact on the fiscal-

10 monetary interaction. Inflation is likely to remain persistent,

8 ending the year near 6.5%oya before easing gradually. We

6 expect the policy rate to rise to 12.50% and remain there into

4 2027. El Niño poses additional risks, particularly through

2 hydroelectric generation, which accounts for the bulk of ener-

0 gy supply. Lower reservoir levels would necessitate a shift to

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Source: Central Banks and J.P. Morgan costlier thermal generation, increasing electricity prices and

fiscal pressures. Drought conditions could also affect agricul-

2H26: Lower premia, but high execution ture, with implications for exports and domestic food prices,

further complicating the monetary policy trade-off.risk

The new political cycles begin on a broadly constructive foot- Figure 4: Monetary policy

ing. Incoming administrations have emphasized the need to %

raise potential growth as a prerequisite for sustained improve- 14 Chile Colombia