What Jumps Out: Colombia Gets Back to Business After Regional and Local Elections

Fortunately, last weekend’s elections are now in the rear view window. We can get back to real news.

Banco de la República left interest rates at 13.25% (with 5-2 vote — and an angry Ministry of Finance), a terminal rate that needs to come down ASAP. The cut doesn’t need to be radical but at least signal that the easing cycle has begun.

As if to emphasize the ongoing damage, National Business Association of Colombia (ANDI) and FENALCO reported October car sales dropped 38.8% year-over-year. We await October inflation data next week, and if it is even slightly positive the central bank has to surely upgrade their November “gathering” meeting to a “decision” meeting (as opposed to waiting until December to cut rates).

The Fuel Price Stabilization Fund (FEPC) deficit (aka, fuel subsidies) will still exit 2023 at $5 billion USD — a $750 million USD increase that will eat all the tax reform gains. Diesel represents 80% of that deficit, and there will be a battle royale with transport companies in 2024 as diesel prices are set to rise.

National Administrative Department of Statistics (DANE) reported September unemployment data, and while year-over-year job creation dropped to 770,000, both the urban (9.6%) and national (9.3%) rates were the lowest for this month since 2016. Also, encouragingly, for the first time in years, unemployment for women fell (from 11.8% to 11.3%) and rose for men (from 7.4% to 7.7%).

EPM is a Medellín basket case and has become a political football — and should be privatized. It won’t be — as each and every Mayor uses it to their own ends — but there is some good news. After the near-catastrophic events of 2018 (when 115,000 people were put in imminent danger), it is finally, after a few billion extra dollars, coming on stream. Turbine 3 and 4 were activated last week and the 1,200 MW surge helped drive spot prices down from $1,479 to $371/kWh. And there is still more to come.

Also contributing to the price decrease (during a period when the experts initially said El Niño would have arrived by) are heavy rains, which have pushed reservoir levels to 72.8%, according to XM.

The central bank needs to take these factors into account. El Niño is one of the reasons (due to energy prices being so correlated to hydroelectric power) that the committee are worried about CPI. They need to file that concern under “unnecessary.”

The markets this week have been quiet.

The Colombian peso initially surged on local election results, but then gave that up after the FOMC comments following its decision to hold interest rates steady on Wednesday in the United States — before again looking at 4,000 to $1 USD once again yesterday.

On equities there was little, although we did have the data flow for October. Still, there were few radical moves. As the COLCAP dropped 2.9%, overseas funds were the largest volume participants (32.1% as they sold a net $14 million USD), while local brokers were the largest buyers.

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