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.

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

While this was slightly better than expected, the positive difference is likely not enough to radicalize the central bank into taking more drastic measures at the end of the month. Fedesarrollo continues to anticipate a year-end CPI rate of of 5.51% — but we are already at 3.34% year-to-date.

The complications related to El Niño may be disappearing into the rearview mirror, but La Niña is now on the horizon — and won’t be helpful when it comes to inflation. Even thought we have been falling for 13 straight months — and 12 months ago we were at 12.82% — Banco de la República is behind the curve.

Along the same lines, Fedesarrollo’s forecast for an year-end overnight interest rate of 8.25% is also looking optimistic given the conservative nature of the central bank.

El Niño, as mentioned, is gradually leaving us. This has helped energy reservoir levels rise from 28.0% to 34.5%, and while water rationing continues in Bogotá, consumption has fallen. Next up, also as mentioned, is La Niña and the expectation for heavy rainfall.

In terms of economic inflows, international tourism continues to boom, with 1.6 million visitors arriving in the first quarter of 2024, an increase of 7.6%. While Bogotá had the most visitors, there is no question that Medellín and Cartagena are drawing the most tourists. The main visitors thus far in 2024, accounting for 26.6%, are from the United States. Given the criminal news emanating from Medellín, in particular, in recent months, most are welcome but many are not — including those disparaging referred to as the “passport bros.”

Ecopetrol’s first quarter results were released this week as well, and thye were, as expected, negative year-over-year. Production was slightly down, however it was the decrease in the price of Brent oil and the stronger performance of the Colombian peso that did the damage.

Ricardo Roa, chief executive officer of Ecopetrol, has been under some political pressure recently, but he has no intention of stepping down. Instead Roa is concentrating on 2025 and the anticipated shortfall in gas supply. Venezuela is prepared to sell at a favorable price — but first the pipeline needs a lot of work. Additionally, given that the United States has reimposed its embargo, permission will need to be sought from Washington.

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

Many of the headlines will be reserved for Friday when National Administrative Department of Statistics (DANE) reveals the inflation number for March. The expectation is that it will have dropped again. According to the Fedesarrollo survey, it is estimated to come it at 7.34%, down from the current 7.74%. Meanwhile, the same survey is now expecting a 5.51% year-end inflation rate to close 2024.

If the analysts are correct, that will comfortably give Banco de la República room to cut another 50bps (to 11.75%) when they sit down in a few week’s time.

That conversation will no doubt be helped the weather experts appearing to be spot on with their El Niño estimate, which suggested it would break last week. There was certainly lots of rain, but XM is still suggesting people need to be careful with energy (which has been impacted by the drop in hydroelectric reservoirs) given that demand rose 8.31% year-over-year in March. Nonetheless, overall, it looks like Colombia will soon be into a normal weather pattern, having had a narrow escape from the dry period.

Hopefully, the central bank will also have taken note of the national unemployment data for February, which stood at 11.7% versus 11.3% a year ago. That is the first year-over-year increase in a very long time — and that backslide sits firmly at the door of a Banco de la República committee that has stubbornly refused to lower rates.

The International Monetary Fund (IMF), in its latest report, highlighted the authorities work in getting the economy back on track after an unbalanced 2021 and 2022. Some of that is the aforementioned central bank raising overnight rates, albeit too far, but also captures the work on the external deficit.

Colombian President Gustavo Petro may take a lot of flak, but the economy has far from come off the rails since August 2022, despite the new head of state inheriting a number of problems from the administration of former President Iván Duque.

If the IMF and ratings agency are generally happy, perhaps the press should take another look. Of course, there is work to do still. But one step at a time.

Finally, the spat in Antioquia over 4G, etc., and ‘Vaca (Piggy Bank)’ continues.

This is effectively local politicians (and some other entities that should know better) stirring up the press in order to gain a few points ahead of the 2026 elections. The government has already stated the original money will be delivered for the infrastructure projects by the July deadline.

The issue is the overspend, which is considerable, and you can’t just print $100 of millions of dollars — not in Colombia anyway. The budget is tight — and being handled carefully — and the money has to come from somewhere. But doubt it will appear before the ‘Vaca’ is filled, which is currently projected to be in June 2025.

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

Photo: Leonardo Villar, governor of Banco de la República. (Photo credit: Banco de la República)

The month-over-month increase of 1.09% was impacted by education (as is normal in February), which rose by 8.74% and contributed 30% of the monthly rise.

This was equalled only by housing (1.07%), which this time around wasn’t overtly impacted by energy (0.96%) but more so by increasing rental prices and the cost of water. El Niño, this time, has been making an impact differently. Food (1.13%) and transport (0.86%) in the meantime had only a modest impact.

Overall, these result leave one big question. What will Banco de la República head Leonardo Villar and the rest of the Magnificent Seven do at their next meeting?

Logic dictates that they won’t cut overnight rates by the 1.00% (down to 11.75%) that Finance Minister Ricardo Bonilla has called for. The finance minister is not alone, as much of the private sector has been calling for the same cut.

Despite these calls, the committee is habitually chasing the curve and will likely opt for a more modest rate cut.

• The other macro number this week was exports for January, which rose 1.3% and totaled $3.74 billion USD. In short, if oil hadn’t risen 15.6% FOB, the number, despite agriculture being positive, would have been negative. There was also a welcome 15.7% rise in total tonnage due to coal, but as prices fell it wasn’t reflected in FOB terms.
• In politics, it was another week to forget, primarily because the politicians did little. We still don’t have an attorney general, as the Supreme Court remains in stalemate. As for the reform process, there has been little to no progress. The speed of budget disbursements was again taking up some column inches this week but there was little substance.

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

There will be a number of things to look out for within the various sectors such, as the impact of El Niño on energy prices and transport costs related to fuel. Overall, however, the expectation is for a headline number that will allow Banco de la República to take affirmative action when they next sit down. Finance Minister Ricardo Bonilla is asking for a 1% cut (down to 11.75%), but given strict orthodox conservative nature of the committee, he may have to settle for less.

The other major macro number that will be released by from the National Administrative Department of Statistics (DANE) is the export data for January. While 2023 was a disappointment for overseas sales, hopefully 2024 will go better.

Ecopetrol’s latest results (released last week) — and the company’s offshore gas update previous to that — have brought the sector into the headlines once again.

While oil production in 2023 hit an eight-year high (on the watch of anti-fossil-fuel President Gustavo Petro), the reality is that Colombia needs to realize that it isn’t Saudi Arabia or even Venezuela. The oil boom is now behind us, and while there is still oil to be found, companies are now comparatively scratching around. The oil field auctions under the administration of former President Iván Duque told us as much, with only lukewarm interest in the offering.

When it comes to gas, there is a lot of talk about — in terms of both possible discoveries and reserves, Ecopetrol dialed back somewhat on its Orca-Norte field information. And, again, there are no guarantees. Adding to the issues are the damage to the pipeline, reported by Natugas, that is to be used to import cheap gas from Venezuela.

Ecopetrol has been a dividend cash cow for many years, which has helped the Colombian government, but those days are surely coming to an end. While the company has offshore interests in multiple locations around South and Central America, the reality is that the political minefield of Venezuela — with its need for overseas help — may represent the final frontier for the Colombian oil industry.

In politics, the Senate will try once again try and discuss the pension reform. Hopefully this time there will be a quorum. The opposition’s attempt to derail the process will only result in two things: (1) reforms being imposed by decree, which is utterly unsatisfactory, and (2) continued questions regarding the Colombian political class — and their being fit for purpose.

Ecopetrol headquarters in Bogotá, Colombia (Credit: Dvalencia)

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

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

This is because Colombia’s central bank, for reasons I cannot detect, only moves rates at eight of their 12 annual meetings.

Should this be taken as a criticism of the seven committee members? Let me remove any ambiguity: It is.

At a time when inflation has begun to ease quite noticeably and the government is being attacked for not loosening the purse strings to kick start an economy that has been choked off by high interest rates, the central bank could simply cut rates by 50 basis points (to 12.25%) and send a huge message to the markets and investors. Private federations such as ANDI and Asobancaria, have been asking for cuts for six months — so it goes beyond politics.

This complaint has been a bugaboo of mine for years and isn’t about to go away. Inflation was down almost 1% (to 8.35%) between December and January, and it is now 5% lower than a year ago. With all this positive news, the committee needs to act.

In other news …

January unemployment data is also out and all eyes should be focused on job creation, which has been slowing over recent months.

On the gas front, Ecopetrol released an update on their offshore field at Orca-Norte 1, reporting the presence of gas and two more potential finds. (Although there were reports the initial excitement had been scaled back somewhat.) Ecopetrol have a number of offshore fields, but the word “potential” is relevant here as Colombia is desperate to replenish is gas reserves and supply. This becomes even more important when Natugas Limited are reporting that the pipeline that was to be used to import cheap gas from Venezuela is damaged and needs a lot of repair work.

Spectator Index reported that Colombian GDP/Head has risen even faster (159%) than the US over the past 20 years. Sadly the nation’s $15,915 per USD capita remains the lowest of any of the main Latin American countries. This echos the OECD report that, despite Colombians being the first to wake up every day, they remain the less productive.

It isn’t about the hours you work, it’s what you do with them — a fact lost on many companies that think, by pushing workers to stay late or work weekends, for the same pay, they get more efficiency. The labor minister reiterated his call last week to get the working week down to 42 hours before the July 2026 deadline agreed by Congress.

Finally, for those that visit Bogotá and lament the shocking traffic situation, it’s time to beware. According to OIAC, Colombia has one of the lowest car ownership levels per capita on the planet. That level is 111/1000 versus Argentina (311), Brazil (214) or France (704). So, in Colombia, it seems it’s not the number of cars. It’s the way they are driven and the roads they are driven on.

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

The government spent 2023 successfully normalizing gasoline prices, in turn saving billions in subsidies. The next battle is diesel prices — and a collision course with the transport federation, Fedetranscarga, which is claiming that if there is anything more than a modest increase to 10,300 Colombian pesos, the prices of eggs (an arbitrary choice) will rise dramatically to 1,300 pesos — somewhere between 20%-30% more expensive than today.

This claim is quasi-blackmail — and it was immediately debunked by Fenavi (the nation’s poultry federation), which pointed out on Caracol Radio that transport represents only 5% of their costs.

It is important to note, however, that the transport workers are going to represent a problem, as the government, quite correctly, tries to move fuel prices to market levels. If not, there will be a deficit of some 10.5 trillion pesos ($2.6 billion USD) by the end of 2024.

In macro news, January inflation data released last Wednesday was in line with expectations for both the month-over-month (0.92%) and 12-month figures (8.35%). A year ago at this time, the number was 13.25%.

The main contribution last month came from transport (+1.99%) due to gasoline prices continuing to rise +40% on an annualized basis. Within the housing (+0.84%) sector, there was positive news on electric (-2.15%), which fell due to government measures. Nonetheless, on the coast, El Niño is driving prices up 30+% on an annualized basis.

Sadly, Banco de la República have the month off in terms of a rate decision when in reality they should have been cutting rates once again by at least 25 basis points.

Fortunately, however, El Niño is taking a couple of weeks off as well. This will likely be short-lived though, as IDEAM Colombia has made it clear that once the current (modest) rains subside, things are going to get dry and hot once again.

Some news on open finance after Superfinanciera, following its usual lengthy potification, approved a measure geared towards making it easier for clients’ data to be shared when they wish to open a new product at a new entity.

Finally, the Constitutional Court has approved the use of custodial sentences for tax evasion. This has been looked at for two decades, but the Petro tax reform of 2022 got it approved.

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

Banco de la República will now come under extreme pressure to lower rates by at least 25 basis points when the committee meets next. There will be ongoing concerns about the impact of El Niño on electricity prices — which are at up 35% year-over-year on the coast — but food registered its third straight monthly decline and transport only had a mild impact despite rising gasoline prices.

Fedesarrollo has been busy this week. The organization reported a slight improvement in consumer confidence for December from -20.9% to -17.3%. This was driven by a 6.6% improvement in household outlook, in all likelihood helped by the recent improvement in the consumer price index (CPI).

Final car sales numbers for 2023 were as poor as expected, falling by 30% to 186,222. But there was better news on electric and hybrid vehicles. They sold a total of 31,490, up 12% year-over-year. This number is coming from a low base, and 88% of these sales were hybrid due to the ongoing lack of infrastructure. However, there is at least a willingness to advance. As per much of the world, there is a huge rise in Chinese brands on the pure electric car market.

In terms of the exchange rate, the Colombian peso had an interesting week (closing Thursday at 3,929 pesos to $1 USD). It weakened on the lower CPI number before stabilizing —  and that was before the US inflation data print, after which it fell slightly once more.

Colombia’s currency, however, appears to be very much rangebound at this juncture.

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

Housing (+1.05%) was the biggest contributor (with 68% of the monthly total), and this was driven by a 5.89% increase in energy prices. El Niño is here, and we see the highest energy price increases in the hottest areas of Colombia, including Santa Marta, Barranquilla, and Riohacha.

There had been a lot of concern about the “Sugar-Fat-Junk Food” tax, which was imposed at the outset of the month as the government of President Gustavo Petro  finally raised taxes on unhealthy products. But food inflation actually dropped 0.45% month-over-month versus an expectation of a 0.21% increase.

Meanwhile, transport was up 0.72% and did contribute but that was after a 4% increase in gasoline prices. We should be close to the end of that cycle as the government correctly reverses over a decade of fuel subsidies.

The other area with a significant increase was restaurants (+0.83%). For an economy that is “struggling” the propensity to eat out or order in for a Netflix evening is still there.

This inflation number will now be up for debate in two places. Firstly, the Banco de la República who now surely have to cut rates by at least 25bps in a couple of weeks time – and then the Minimum Wage Commission who next week will have to come up with a number next week – 10%+ seems a certainty.

Earlier this week I ran through the other main news, but in brief:

The health reform has passed through Congress with a couple more articles removed. From January the Senate and the Supreme Court will have their say – expect yet more adjustments amidst an atmosphere of excitement and trepidation.

October exports fell 1.5% year-over-year, much better than the double digit declines we have seen throughout 2023 however OIL (+28.5%) alone basically accounted for the whole increase. Elsewhere, benign numbers.

Colombia’s current account deficit or Q3 dropped for the fourth consecutive quarter to -1.7%, despite fears over the Petro administration’s discipline, the lowest reading since Q2 2009.

The Ministry of Transportation and Fedetranscarga remain on a heavyweight collision course over fuel prices in 2024. The government has already stated its aim to raise diesel prices — having not touched them in 2023 — but it is going to be a rocky road. The government is discussing moving large companies only to international prices whilst the transport companies are saying that an 80% increase is coming. This will be a fascinating watch.

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

Photo: Banco de la Republica, the central bank of Colombia, in Bogotá.

We already have the PPI data for November, and there was another healthy decline — especially the year-over-year number of -5.65%. By comparison, 12 months ago, PPI was rising by 24.53% year-over-year! On a monthly basis, there was a drop of 1.91% in November.

Let’s hope the CPI data is even close to as good.

Meanwhile, exports in October were once again lower year-over-year (-1.5%) at $4.15 billion USD. Though there was nothing too dramatic at a headline level, when boring down there, was also little to cheer. The overall number was propped up by oil sales, which rose 28.1% year-over-year and added back in 8 points, while coal had the opposite effect (with a fall of -36.9% and -8.6 points, respectively). While agriculture (-14.3%) slipped, there was a bump for manufacturing (+5.4%) driven by (excuse the pun) a big jump for transport equipment (+38.2%).

The health reform has now finally passed through the House of Representatives. A couple of articles were shaved off, but it is pretty much where it was a week ago. Next year, after their lengthy holidays, the Senate will begin deliberations and that will be another lengthy process. After that, the Supreme Court will take a look.

There are, naturally, a lot of emotions surrounding the reform, ranging from ecstasy to trepidation depending on your standpoint. But, after six months of Congress’ time being burnt up already, the sluggishness of the Colombian system has been paid bare once again.

In other news, the third quarter current account deficit of the nation dropped once again to -1.7%, marking the fourth consecutive quarterly drop and the lowest imbalance since the second quarter of 2009. There are a myriad of factors involved. But, given the concerns in 2022 over a President Gustavo Petro-led government’s capacity for economic discipline, this is a positive development.

Bancolombia released its October construction and housing report, and once again there was little in terms of positive news. New home sales were down 44.6% amid an environment of high interest rates.

Leonard Villar, are you paying attention?

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