Moody’s credit rating for Colombia could be upgraded, placing it alongside Latin American economies Brazil and Peru, said a senior analyst from the credit agency in a report from US wire service Bloomberg on Thursday.
The agency placed Colombia on “positive” outlook, with a view for a further upgrade, almost 12 months ago and now the analyst has predicted another adjustment might be in the works.
Moody’s, one of the Big Three global credit ratings agencies, ranked Colombia at Baa3, the lowest position in the category of “investment-grade” countries, in 2011, breaking a decade of weaker ratings. This was helped largely by an improved security situation within the country, said senior analyst Mauro Leos.
A credit rating reflects the risk that investors take on when they invest in an economy and the higher the rating, the lower the perceived risk.
Moody’s cited on its website that the reasons for the outlook included successful deficit-reduction, macroeconomic policies promoting economic stability and a commitment to cutting government spending.
Lowest ‘safe’ investment grade
Colombia’s current Moody’s rating of Baa3 is widely seen as the lowest rating considered relatively safe for investment. Lower than this denotes a significantly higher-risk country in which to invest, and generally suggests less economic confidence in the country.
Leos said Moody’s confidence in the Colombian economy has been consolidated following convincing economic growth and sustainable macroeconomic policy in the coming months.
Meanwhile, economic growth is accelerating with inflation within targets, in line with back-to-back interest rate hikes by Colombia’s central bank.
The board of Colombia’s central bank, Banco de la Republica, voted unanimously in May to cut back stimulus and increase their key interest rate to 3.75%.
MORE: Colombia’s Central Bank hikes rates again as economic growth gains momentum
Friday’s 0.25% rise follows an equivalent hike in April, placing interest rates at their highest level since January 2013 according to UK wire service Reuters.
Economic growth has been gathering momentum over the last year and estimates for the first quarter are almost double what was predicted for the same period in 2013. Colombian government forecasts pin this year’s growth rate at 4.7%, up 0.4% from 2013. The figures are released amid record-low unemployment in April and a jump in inflation expectations.
Colombia’s current rating positions it alongside India, Indonesia and Turkey, one rank below Latin American powerhouses, Brazil and Peru. This is still well below wealthy economies with the top Aaa rating like the US, Australia and Norway.
Accelerated growth
According to Leos, it takes on average 12-18 months for an economy on “positive outlook” to receive an upgrade. He went on to compare Colombia’s predicted growth of 4.5% this year with expected growth lags in neighbors Brazil, Peru and Chile, as reported in the median forecast of a Bloomberg survey.
Confidence in the Colombian economy is aided by predictions of economic continuity regardless of the outcome of the country’s second round of presidential elections on Sunday, according to Leos.