How Far Will the Colombian Central Bank Cut Interest Rates in 2024?

Mathematics was never an educational strongpoint, to say the least, while I was studying.

But I have enough knowledge to call into question analyst expectations regarding Banco de la República during the rest of 2024.

A quick explanation.

Last week, the Colombian central bank cut interest rates by 50 basis points to 11.75%, and we are now sitting 1.5% below the 13.25% peak. But that was not enough for Finance Minister Ricardo Bonilla, who has constantly criticized the committee for their sluggishness over the past nine months. He has even proposed raising the debt ceiling or bending the fiscal rule in order to stimulate the economy if the central bank fails to act.

This week, the National Administrative Department of Statistics (DANE) will publish inflation data for April, and Fedesarrollo expects another marginal decline to 7.15%. The same entity is expecting year-end consumer price index (CPI) number to come in at 5.51%. And it is also predicting an exit overnight rate for 2024 of 8.25% — a forecast that has inched up slightly (compared to 8%) since the last time analysts were surveyed.

Herein comes the math calculation.

The central bank has eight more meetings in 2024. However, three of those meetings are so-called “non-decision” gatherings where little happens and no rate changes occur.

Therefore, to get to Fedesarrollo’s 8.25% forecast by year-end, the committee will need to cut overnight rates by an average of 70 basis points at each of the remaining (decision) meetings during 2024.

That is where my doubt lies. This is an institution that is conservative by nature — and that seems a stretch.

Therefore, while rates need to come down faster in order to stimulate the market and drive confidence, the central bank has now acted too late. And that 8.25% projection now seems optimistic.

Hopefully, I will be proven wrong.

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