Colombian Central Bank Cut Interest Rates — by the Bare Minimum

After Monday’s national holiday, we have just two working days this week in Colombia (and most won’t be in the office) before we shut down fully for the Easter Egg hunt.

Banco de la República cut rates by 50 bps, to 12.25%, on Friday, but despite Chairman Leonardo Villar’s words expressing the “magnitude” of the cut, the simple fact is that:

1. It was the absolute minimum they could have done
2. It was not enough in the eyes of either Finance Minister Ricardo Bonilla or the private sector
3. The central Bank remains the single biggest handbrake in Colombian economic expansion.

The committee almost chose to ignore their own most recent analysis, which lowered the 12-month and 24-month inflation estimates to 4.7% and 3.5%, down from 5.7% and 3.8%, respectively. On top of this, according to almost every document you care to read, El Niño has not been as fierce as expected, despite some glorious suntans, and that we are in the final throughs of the drought.

Despite the central bank’s obstinacy, JP Morgan published an upbeat economic report suggesting that first-quarter GDP will rise 4% and that 2024 will total 1.6%, which is at the top end of the range. This would be supported by employment data that has remained robust despite high interest rates badly impacting investment, as well as the housing and automotive sectors, among others. That said, try to find a parking space at any given shopping mall — good luck!

The other talking point last weekend was the ongoing dispute around the government and its tight hold on the budgetary purse springs, especially the 4G infrastructure projects. Colombian President Gustavo Petro’s team is watching the pennies, a fact that hasn’t upset the ratings agencies — but has caused disgruntlement in the regions, especially Antioquia and Medellín.

The 4G projects are 95% finished. But due to overspend, Petro is required to send extra funds — and he hasn’t. As of yet.

The government says the money is coming. But former President Álvaro Uribe, who is ideologically juxtaposed to Petro, isn’t waiting. He has called for Antioquia to raise approximately $250 million USD, take over the 4G projects, and complete the job. Without getting into the political weeds, this is less about 4G projects than political jousting and point-scoring between Bogotá and what is referred to as the Federalist wing in Medellín. Beyond all of that, the legal complexities of such a move must be immense.

It’s a sideshow — but at least an interesting one!

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