What Jumps Out – All Change (At The Central Bank)

Yesterday the Central Bank sat down for one of their non-decision board meetings, something I’ve never got my head around as a concept, but the main headlines appeared before the coffee and biscuits were even on the table.

Last week we saw the resignation of Catalina Soto as Co-Director after three years on the committee, the reason for this was the announcement by husband Alejandro Gaviria that he would be running for the Presidency in 2022, a subject we will no doubt come back to, but he is seen a breath of fresh air.

Ahead of today’s meeting it was announced that Alberto Carrasquilla, who recently resigned as Finance Minister after the failed first attempt at a tax reform, was being appointed as Co-Director forthwith. The only issue here, Carrasquilla is clearly a talented financier who was considered as Central Bank Head just a few months ago, is the independence of the committee.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

While there are elections on the horizon, the next President will not be in place until August 2022 – the significance of that for the committee is that the Co-Directors have now all been appointed by the current president. The independence of the Central Bank has always been protected by the fact that sitting Presidents can normally appoint two Co-Directors (plus the Finance Minister) which protects the integrity of the committee. Through no fault of his own, Duque has now overseen a complete overhaul. Five Co-Directors have been appointed, Carrasquilla has been replaced as Finance Minister by Jose Restrepo and Juan Jose Echavarria was replaced as Head of Committee by Leonardo Villar after his surprise resignation. One of the issues picked up by the press amongst many commentaries was the fact that, at a time when Colombia is making major strides in terms of equality, Bibiana Taboada, is now the only woman left on the committee. Hopefully that will be addressed the next time there is a vacancy.

This upheaval comes at a delicate time for the committee – after almost a year at 1.75%, a record low, we now see inflation at 3.97%, right at the top of the band. Of course, this jump in inflation is a phenomena that has been seen globally, including the US, as part of the post-pandemic re-opening and we also saw recently South Korea raise rates as signal that perhaps the cycle of uber low rates is set to end. Here in Colombia inflation when printed later this week is expected to rise to 4.21%. By next month the committee may have a decision to make.

Subsequent to the meeting, the committee announced that the bank would be repatriating some international reserves, this comes in conjunction, it appears, with the IMFs approval of the SDR allocation for the country which is around US$2.75bn. It is reported that a total of up to US$6bn may be arriving over the coming months.

I made mention of this repatriation of hard won reserves a few months ago given their huge rise in peso terms over recent years, a very logical decision and one that may help push the currency upwards. We have seen a slight rebound over recent sessions as the peso recovers from the perfect storm of a lost investment grade, a wobbly oil price and forthcoming elections.

Another major factor for the peso will be exports and there was good news on that front for July.

First and foremost, there was an increase of 27.4% to US$3.25bn which was to be expected as the world economy recovers however the headlines revolve around the fact that the number is only 0.1% below that of July 2019. That number is positive in itself as we get back to pre-pandemic levels of sales however included within that is a 37.2% decline in oil exports over the past 24 months. If oil production and prices normalize, we could see welcome improvements in export numbers and that in turn will help push the peso.

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops