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Flash Note: Monetary Control TES issuance would not imply a reduction of market liquidity in the short term

July 2, 2014 ( newswire) The Ministry of Finance released the TES auctions schedule for 3Q14. Both amounts and the securities for TES TF COP and TES TF UVR auctions will remain unchanged in comparison to 2Q14. However, there will be new issuance of Monetary Control TES (MC TES) for an amount of COP 6 Tn by Nov-14. In any case, we estimate that the ongoing program of USD purchases by BanRep will mean that the overall net effect on market liquidity will be positive in coming months.

According to the MinHacienda, the schedule for TES TF COP and TES TF UVR auctions will remain unchanged. That is, TES TF UVR auctions will place COP 300 Bn every two weeks while TES TF COP auctions will place COP 600 Bn on each of the two remaining weeks of the monetary month.

On the other hand, the MinHacienda announced the issuance of monetary control TES (MC TES) for an amount of COP 6 Tn between Jul-14 and Nov-14. The issuance will rollover maturities for COP 5.5 Tn, and thus there will be a net issuance of COP 0.5 Tn at the end of the program (Nov-14).

Although the effect from the MC TES issuance program by itself will withdraw COP 0.5 Tn from the market, in net terms the MC TES issuance will not be enough to offset USD purchases by BanRep, that are expected to accrue at least COP 3.4 Tn in 3Q14, according to our estimates (table 1).

Thus, even under conservative assumptions, the net effect on liquidity would be positive for the market taking into account the USD purchase program by BanRep. Even though we assume that this program is not extended in 4Q14, we assign a high probability for the USD daily purchases to continue during that period for which our estimates may be biased on the downside.

According to the above, it is clear that the main monetary policy tool will continue to be the repo rate as the USD purchases program will inject liquidity to the market in coming months.

Credicorp Capital

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