LONDON/BOGOTA (Reuters) -Colombia’s incoming finance minister Ricardo Bonilla and President Gustavo Petro sought to calm the market on Thursday as the peso currency, bonds and the stock exchange fell 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.
The currency closed on Thursday down 2.87%, at 4,656 to the dollar, its lowest level in a month.
The MSCI COLCAP stock exchange was down 1.53% to 1,167.51 points, while yields on local TES bonds coming due in February 2033 rose to 12.019%, from 11.425% on Wednesday.
The premium demanded by investors to hold the country’s international bonds increased by 20 basis points to 429 bps, the largest daily widening in six months, JPMorgan (NYSE:JPM) 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 wrote on Twitter, adding the central bank will remain independent.
Ocampo, who will remain in post until May 1, 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 (LON:BARC). “But it also reduces the tail risk of radical reforms.”
“Recent market moves are overdone,” Wells Fargo (NYSE:WFC) said in a note, adding Bonilla “is also a technocrat with a track record of implementing sound fiscal policy” and it is not adjusting its peso forecast.
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.