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Improved Inflation Expectations for Colombia in 2024


Inflation Colombia 2024
Improved inflation expectations for Colombia in 2024 – Credit: Josep Freixes / Colombia One

A report by Bank of the Republic offers data that improves inflation expectations for Colombia in 2024. The Colombian central bank has published its monthly survey, corresponding to the month of January, in which analysts project a progressive and sustained reduction in inflation during this year, reaching 5.5% by December, more or less the figure the Colombian government is working with.

Not everything is positive, as the same report notes a reduction in economic growth, something that could improve if the issuing bank decides to continue with the reduction of interest rates, as it did in December 2023. This decision is a possibility, despite the traditional prudence of central banks in this respect, if the downward predictions on inflation in the country are fulfilled.

Medium-term economic recovery

The central bank’s data and reports project a scenario of economic recovery, and growth, in the medium term. The Issuer’s report not only provides indicators on inflation, but also includes projections on other key elements of the economy, such as interest rate and Gross Domestic Product (GDP) growth.

The results of the January survey focus on inflationary dynamics, a determining factor for the purchasing power of citizens and the financial stability of the country, which for almost two years has had high interest rates that hinder access to credit for families and small businesses, reducing consumption and, therefore, economic growth.

In this context, the same report forecasts a reduction in the interest rate this January, placing it at around 12.64%. This would mean a reduction of 0.36% and the second consecutive decrease in two months, a downward trend that would continue throughout the year.

Economic stagnation, for now

What is not improving, for now, is economic growth. The report estimates GDP in the fourth quarter of 2023 at 0.61%, lower than the 1.08% previously projected for that period. However, these data are prior to the issuing bank’s decision to initiate the rate cut in December.

Thus, Colombian GDP growth would reflect a deceleration for 2023, settling at 1%, and for 2024, a projection that oscillates around 1.50%, initiating a slow growth that would not be consolidated until 2025.

The interest rate plays a major role in all of this. If the forecasts are fulfilled, this year would close with a rate of 8.28%, dropping to 5.69% in 2025.

All these are just projections that analysts work with, but they are not linked to the decisions of the issuing bank and the economic authorities, who are the ones who finally decide the country’s economic policy. Moreover, the situation may change for the better or for the worse, depending on local or global conditions.

What are not projections, but official data that confirm the good feelings of the central bank’s study, is the November 2023 growth. In a document released today by the National Administrative Department of Statistics (DANE), it is reported that for the penultimate month of 2023, the Colombian economy grew by 2.3%, compared to the same month of 2022. With this data, the recovery is confirmed, after the negative falls in the Third Quarter of 2023, leaving behind the ghost of recession. According to DANE, the Colombian economy grew 1.0% during the first eleven months of last year.

Currency stabilization

Another aspect of concern for Colombian society is the volatility of the currency in recent years. Since the official start of the Covid-19 pandemic, in March 2020, the peso began a significant depreciation against the dollar, a fall that worsened with the change of Colombian government in August 2022.

The most delicate moment came in December of that same year, when the dollar traded in Colombia at over 5,000 pesos. The U.S. currency, however, has been recovering to levels ranging between 3,950 and 4,000 Colombian pesos.

According to the central bank’s survey, it will continue throughout 2024 in those margins, trading at approximately 4,004 pesos in December, a value that would reach 3,984 pesos by 2025.

This scenario indicates that experts see a stabilization of the Colombian peso, after three years of high volatility and depreciation in the exchange markets.

Inflation Colombia 2024
The Colombian peso is predicted to stabilize in 2024 – Credit: Edgar Zuñiga / Public Domain

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