What Jumps Out: Unlikely Bedfellows Band Together to Call for Interest Rate Cuts in Colombia

This week we have seen the remarkable sight of the National Business Association of Colombia (ANDI) and the Ministerio de Hacienda in accord demanding that Colombia’s central bank begin to lower rates — in what is hopefully the start of a more harmonious relationship.

That said, they are likely to be very disappointed, as August inflation, per the National Administrative Department of Statistics (DANE), came in at 0.7% month-over-month and 11.43% year-over-year, both higher than expected. The 1.13% spike in food came against the traditionally benign data for that sector at this time of the year. And, on top of that, El Niño is coming and will add to concerns. The producer price index (PPI), which was previously revealed, for August also rose a very significant 1.55% month-over-month after having dropped in July.

Taken all together, there are now a host of factors here to suggest that the central bank may not be able to cut rates by as much as expected — or even at all.

Exports for July, perhaps unsurprisingly, fell by 30.8% (FOB) in another month to forget for the commodity sector, which accounted for 84% of the decline. Coal (-62.5%) and oil (-26.2%), in particular, struggled badly. The only other key FOB takeaway was gold, which rose 321% year-over-year. If only the government had been hands on for the past 20 years, that figure might have dwarfed that of coal. Switching to tonnage, there was an overall drop of 19.2%, with coal (-30.2%) accounting for the whole decline. For its part, oil actually rose 3.9% year-over-year.

Sticking with oil, there was another production increase in June. The total of 778,000 bpd was up 3.4% year-over-year and 0.6% month-over-month. Interestingly, the first 9 months of the administration of President Gustavo Petro has seen an higher average daily production of 32,000 bpd versus the last nine months of the former President Iván Duque administration. So much for that theory!

In the same sector, after another 2.7% MoM increase in gasoline prices for September, the transport minister announced that the agreement on special prices for the country’s 230,000 taxis is moving ahead.

In other macro news, there was a welcome decrease in the current account deficit at the end of Q2 to 3% of GDP, or $2.5 billion USD. That was much lower than most expected and will have analysts lowering their FY 2023 estimates.

As for the reform process it is crawling along but making relatively few headlines.

On the markets: the COLCAP had a SHOCKER — partly because of an untidy rebalance last week and perhaps more so due to the J.P. Morgan report that suggested that MSCI Inc. (ironically, the COLCAP sponsor) might drop Colombia from an “emerging” to “frontier” market. There is no hard evidence for this, but it served to 100% overshadow the formal launch of the new integrated NUAM market, which constitutes the Bolsa de Valores de Colombia (BVC), Bolsa de Santiago, and Bolsa de Valores De Lima. Here, there is much work ahead!

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