After the pandemic, the economic reactivation of Colombia began with a copy of what was already happening in the world: adjusting to higher inflation and accepting the increase in interest rates to avoid a greater financial collapse.
Two years later, the country managed to obtain two records: the highest inflation and the highest interest rates of the century.
However, now that the world and the country have adapted to passing on the cost of money and prices to their population, everything seems to indicate that the two indicators have reached their ceiling.
Regarding monetary policy, it seems that the board of the Banco de la República still expects an increase of 0.25% at its next meeting at the end of the month to leave the top at 13.25%, although many bet that it will be left the rate at 13% to begin a stability in the second semester.
Last March, the Central Bank of Colombia raised its interest rates to 13%, but in the words of the Bank’s manager, Leonardo Villar, the board of directors met the expectations of most analysts, who expected it to continue raising the rate, but slower than in months past, a sign it plans to rein in increases. If between August and December 2022 the rate was 100 basis points at each meeting of the Board, in January the rise was 75 and this month it was only 25.
The Finance Minister, José Antonio Ocampo, was present at the announcement, made before the media and financial analysts. Villar assured that they made the decision taking into account the most recent inflation data.
forecasts
However, in statements last Friday, the Minister of Finance, José Antonio Ocampo, assured that from said portfolio it is expected that, in the second half of 2023, the interest rates of the Banco de la República will begin to drop.
Ocampo said that the lowest rates in the country are for public debt securities issued by the General Treasury of the Nation (TES), which generates confidence in financing.
“The lowest rates in the country are those of TES, it is a positive element that shows confidence in the National Government and its financing”held.
In the same sense, the official stated that these rates are also being sought to be lowered in private banks, so that there is more interest on the part of the consumer to request credits and, therefore, achieve that the growth of the economy.
“I think it is a very positive element, obviously it is peculiar because what we would like is for private sector interest rates to drop a little closer to the TES level and we hope that the Banco de la República begins to reduce rates from the second semester“said the Minister of Finance.
Ocampo confirmed that this type of effect on the economy that will occur in the second half of 2023 will reduce inflation in the country, which will allow Colombians to improve their quality of life, mainly the most vulnerable households. from the country.
On the other hand, if the forecasts made by the Fedesarrollo Financial Opinion Survey (EOF) survey are met, inflation has already peaked and will begin to decline this month.
The off the hook
Indeed, analysts estimate that the result for April would be 12.96%, lowering the figure for March when inflation stood at 13.34%, the highest since 1999.
According to the director of Fedesarrollo, Luis Fernando Mejía, “analysts predict that inflation will finally hit a ceiling in March, because they are estimating that in April it will be 12.96%. Inflation will come slightly below 13% and then inflation will hit a ceiling.
Likewise, and according to the Fedesarrollo survey, analysts expect the interest rate of the Banco de la República to remain at 13.0% in April 2023. In addition, the rate will remain at 13.0% in July of 2023 and close this year at 11.0%.
For this edition, analysts expect inflation to close at 9.12% at the end of the year (in a range between 8.89% and 9.94%), evidencing an increase compared to the previous edition (9.00%). Therefore, inflation expectations remain outside the Banco de la República’s target range (2.0% – 4.0%).
The food
For Bancolombia researchers, the result for March with inflation of 13.34%. It has a mixed reading given the positive moment that the food item has been showing, which is offset by the inflationary persistence of the basic component.
In this sense, the indexation effect would continue to be latent in the dynamics of services, especially in rental rates, which represent approximately a quarter of the total CPI.
“On the positive side, we anticipate that this trend observed in food would continue until at least July of this year, the month in which an ‘El Niño’ climatic phenomenon could begin. By incorporating the lower volatility of the exchange rate, the reduction in the price of urea, nitrogen and food at a global level, in addition to the return of maritime freight at 2019 prices and the 60% probability of the onset of droughts During 2023, we project that food inflation would end the year at below 9%”, the experts indicate.
They point out that, to the contrary, the persistence of the indexation effect in the services category and the greater pressures in the regulated items would mean that the gains in food are not fully translated into the total variation of the CPI.
In addition, on the services side, rental rates and accommodation services would lead this segment to end the year around 9%. For its part, the constant increases in gasoline would be the main catalyst for high levels in the regulated item, where electricity rates would also do so, when the climatic phenomenon of ‘El Niño’ materialized.
On the other hand, in the case of the goods category, the accumulation of inventories at the end of 2022 and in the first months of 2023, the recent stabilization together with the expected appreciation bias of the dollar in the coming quarters, and the weakening of the consumption of households would limit the ability of prices to continue with their vertiginous upward trend. “On this point, we believe that inflation in goods would end the year around 7%. Therefore, with year-end inflation close to 8.5% for food and basic inflation of 9.15%, we anticipate that inflation would end the year at 9%”, Bancolombia analysts point out.
The slowdown in prices
Laura Peña, an economist at BBVA Research, stated that “we expect inflation in 2023 to begin to moderate towards the second quarter and show a further slowdown towards the second half of the year, largely driven by less dynamics in the Colombian economy.” .
On the other hand, some experts say that this slowdown will be noticeable when comparing it with the increase that the indicator presented in the first three months of 2022.
“It will begin to slow down significantly, especially due to the monthly inflation base that in January, February and March was extraordinarily high and that will cause food to help inflation drop to end around 9% at the end of the year. this year,” said Sergio Olarte, chief economist at Scotiabank Colpatria.
It should be noted that one of the tools that the Bank of the Republic has used is the increase in the interest rate, which is currently at a maximum of 13%.