Colombia Central Bank Exhibits Dereliction of Duty in Failing to Accelerate Pace of Rate Cuts

Banco de la República, the central bank of Colombia, yesterday voted to lower rates by just 50 basis points — from 11.75% to 11.25%.

This is an embarrassingly poor decision that might lead a conspiracy theorist to suggest there is politicking at play.

To add some context to this claim, the central bank didn’t have a rate decision meeting in May. So the 50-basis-point move effectively means that they have chosen to cut rates by a mere 25 basis points each month.

Colombian Finance Minister Ricardo Bonilla must be pulling his remaining hair out.

Along with the rate cut decision yesterday, the central bank committee pointed out that May inflation was stable (with a 7.16% year-over-year rate) compared to April. In doing so, they chose their self-fulfilling narrative that inflation is being stubborn and ignored the fact that analysts had anticipated in advance that food inflation in May would be elevated as a result of nuanced sector factors that won’t be repeated in subsequent months.

The central bank governors also chose to ignore the fact that the May inflation reading was more than 5% below the May 2023 number.

Perhaps most of all, the governors have decided they know better than the government and the rest of the private sector — including key groups ANDI, FENALCO, and Asobancaria — which all have been pleading for rate cuts for the past six months.

This week, Fedesarrollo’s latest survey suggested a year-end 2024 overnight rate of 8.50%.

Good luck getting there at this pace.

Remember: The overworked committee only makes rate decisions at four of its next six monthly meetings. Given this, getting to 8.50% by the end of the year would require an average cut of 69 basis points at each sit down.

Do we really see that happening ?

We are overdue for some rotation in the central bank governors.

And yesterday’s overly conservative decision makes it even more obvious.

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