Central Bank to Make Another Rate Cut Decision this Week in Colombia

General Motors announced that it will be closing its two plants in Bogotá at the cost of around 800 jobs, a crushing example of the problems being faced by the vehicle industry.

GM are not alone, with other manufacturers having also reduced working hours — and this has been a long time coming.

Ever since overnight interest rates started to rise, the consumer confidence data from Fedesarrollo has reported a falling propensity for vehicle purchases, and forecourt sales have collapsed. On top of this, rolling back the clock, Venezuela was once an key importer of vehicles from Colombia, and that is no longer the case.

It is too late for GM. But, hopefully, Banco de la República will this week cut those overnight rates — by at least 50 basis points — from the current 12.25% in order to support not just the vehicle sector but also the housing and consumer durable markets, which have been equally hit by inflation and central bank policy.

Anything less than 50 basis points is unthinkable — and might lead to them being chased down the road by a pitchfork waving population. Anything more would be welcome shot in the arm for both local markets and investors, as the committee has been overtly conservative so far in their rate-cutting cycle.

With El Nin̈o now on the way out, they should cut by 75bps — if they’re brave enough.

Speaking of El Niño, the rains have arrived! Nothing biblical, so far, but certainly more than a normalization. Reservoir levels are rising, but remain close to critically low levels. Bogotá remains under water-rationing conditions, but already there are those discussing the arrival of La Niña and, with it, the reverse problems of potential landslides and floods.

In other news: Colombia has received praise from the International Monetary Fund (IMF) as they agreed a new two-year $8.1 billion USD stand by loan. The organization highlighted the country’s institutions and the robust economy while complimenting the government on its efforts to move away from fossil fuels.

Finally, in politics, President Gustavo Petro and his cabinet were locked away in an enclave all weekend as we await pronouncements as to whether there will be any change in direction when it comes to pension, education or even health reform proposals, which may yet reappear in the coming months. However, the initial statement was contrite in nature recognizing that mistakes had been made.

Never miss Rupert’s latest commentary
Follow him now on LinkedIn to see What Jumps Out