How Much Will the Colombian Central Bank Cut Rates This Week?

This Friday, Banco de la República will sit down once again to deliberate and, hopefully, they won’t disappoint everyone once again.

Photo: Banco de la República, the central bank of Colombia, in Bogotá. (Photo credit: Camilo Sanchez)

Having taken a day off in May, this week surely they need to reduce the current 11.75% by more than their standard 50 basis points. The market needs/wants rates to come down at a far more accelerated rate in order to restore confidence to both consumers and investors. It will also help us avoid the type of shabby home sales data (May -26.9%) that was reported by Camacol Colombia last week.

While a central bank jam packed with nominees of former President Iván Duque might be happy to see current President Gustavo Petro in an economic jam, it isn’t just Finance Minister Ricardo Bonilla who is demanding lower rates. The private sector — in the shape of Asobancaria, Fenalco, and ANDI — have been demanding more resolute action on interest rates for almost a year.

Hopefully, we will get the 1% cut that will add some stimulus to the market.

But will the not-so-Magnificent 7 on the decision-making committee be up to the job?

That stimulus needs to come via monetary policy because, right now, the fiscal situation simply won’t allow vast injections of money from the government.

Yes, they increased the debt ceiling last week by 24% to $87 billion USD. But that is geared towards management as opposed to stimulus. Moody’s Ratings has again been discussing the need for prudence. And Bonilla 10 days ago spoke to that by reducing government spending plans by $5 billion USD.

Ironically enough, at a time when the much-maligned-as “socialist” government is trying to be prudent with the finances, the “conservative monetary” opposition is central to clarion calls to loosen the purse strings.

This irony can also be seen in the wait for Bonilla to announce the dismantling of diesel fuel subsidies that are costing Colombia $5 billion USD per year of money it doesn’t have. In 2023, the government did a great job stripping away gasoline subsidies (primarily from the rich), and now the transport companies need to prepare themselves to pay more. These communist style subsidies were introduced by previous market-economy, rightwing governments and are now being removed by the “socialists.” A

t times Colombia is a indeed tough read!

The Colombian peso could be impacted by the rate cut on Friday, but its recent slippage — due to a mixture of local concerns over the fiscal situation and to a greater extent by overseas events — means any cut is more than priced in.

For now, I will leave it there. But I will be back with more during the week with anything pertinent. In the meantime, wherever you are in the world, savor the fact that the Colombian Congress is on its holidays.

And pray that they are on beaches that have no signal!

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