What Jumps Out: Waiting For BanRep

The Central Bank will sit down shortly over fine Colombian coffee and, no doubt, a few cheeky pastries to discuss what to do about interest rates. The current 10% is not going to get the job done and the consensus is for a move to 11%. The question that remains is whether that is enough, or will it be the number? Last time around the committee was surprisingly dovish in tone and Finance Minister Ocampo is of the opinion that supply side inflation can’t be controlled by large rate hikes; but there are few signs of the economy slowing. GDP estimates, imports, bank loans: all of the data is bullish, and anecdotally it is hard to see where the move from 3% to 10% in interest rates has impacted.

The other ‘big’ news is the potential U-Turn on oil exploration licenses which was mooted by President Petro. It is yet to be confirmed and Finance Minister Ocampo also stated it is still being discussed. If it is confirmed then it would send a positive message to the markets, regardless of whether any license auctions are held between now and 2029. Remember there were no auctions between 2015 & 2020. In the end, as they have stated, the oil companies have more than enough work to be getting on with.

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

Whilst analysts are busily going over every one of Gustavo Petro comments in forensic detail when it comes to exploration licenses, it always surprises me that there are fewer questions as to what has happened to national production since 2015, when production was above 1 million bpd? The latest oil production numbers are out and once again there is little to cheer, August production of 749k bpd is just 1000 barrels above a year ago. That decline of 250k bpd over the past 7 years equates, at today’s prices, to $25 million USD of revenues per day, or $9.1 billion per year.

The Peso remains in focus but what we have seen this week is that there is very little that Ocampo or Petro can do to affect the currency. It has been one of the best performing currencies on the planet this week – but that was nothing to do with the government, it was simply global market forces at work. If the dollar slides or oil rises, it is largely independent of any local policy. With the aforementioned comments on licenses we could yet see a continuation of the rally.

The latest Fedesarrollo financial survey for September, which I summarized on Monday, saw the average YE 2022 inflation estimate rise from 11.18% to 11.88% and in turn those of Central Bank rates from 11% to 11.5%. There are a lot of moving parts in those estimates, not the least of which are the Peso and imported inflation, as well as the Colombian weather. 2022 has been a brutal year in terms of rain – and it continues, this floods fields and brings mountainsides cascading down onto roads, which means products fail to make it to market. Fedesarrollo also gave us the latest Retail and Industrial confidence numbers and whilst they were down from August, they were better than expected.

The tax reform, which Ocampo is expecting to see voted on next week, is beginning to resemble Apollo 13 on reentry to earth with tiles ripping off in the congressional atmosphere. This week there have already been concessions for both the energy sector with regards to their use of tax-free zones and for those with big pensions—which would of course include those ex members of the aforementioned house—coincidence perhaps.

Please find below the link to the LinkedIn video :

https://www.linkedin.com/posts/rupert-stebbings-927b6316a_what-jumps-out-waiting-for-banrep-the-activity-6991718391698890752-0vEk?utm_source=share&utm_medium=member_desktop

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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