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Colombian central bank may hold interest

Colombian central bank may hold interest

Posted by Jesus Mendoza on January 30, 2015

Colombia's central bank will likely keep its key lending rate unchanged for a fifth straight month on Friday, in an effort to bolster slowing economic growth amid plunging oil revenue and a mounting crisis in Europe.

The seven-member board is expected to leave the benchmark interest rate at 4.5 percent, according to all 25 analysts polled by Reuters. Board members voted unanimously in December to keep rates unchanged.

The vote comes as world economies grapple with a slump in prices for crude, Colombia's biggest export and source of foreign exchange, creating fiscal worries for the Andean country as royalties and tax earnings take a hit.

"We think that this rate still stimulates the economy" Angela Gonzalez, analyst at Banco de Bogota.

Still, the bank may revise down its economic growth projections for 2014 as well as 2015, analysts said. GDP estimates currently stand at 5 percent for last year and 4.3 percent for 2015.

Fourth quarter and full year economic expansion data is due in March.

The board may also address how the election in Greece of leftist Prime Minister Alexis Tsipras could impact the European Union and eventually Latin America and Colombia.

At December's meeting, central bank chief Jose Dario Uribe said lower-than-expected third-quarter economic growth of 4.2 percent would mean slightly slower expansion for 2014, at a bit below 5 percent.

"In terms of GDP, we're anticipating much more dovish language and the bank will probably adjust the growth path downward for this year," Gonzalez said.

In a Reuters poll this week, 48 percent of analysts said they expect at least one cut to the interest rate before the end of the year, compared with just 14 percent in last month's survey.

The lending rate was raised 125 basis points during a five-month period last year after faster-than-expected first-quarter growth raised concerns about inflation.

Analysts have predicted inflation of 3.3 percent for this year, near the mid-point of the bank's 2 to 4 percent target range. Annual inflation in 2014 was 3.66 percent.

The peso has depreciated by almost 20 percent in the last year, pushing up inflation as imports become costlier, which may have the fringe benefit of boosting Colombian manufacturing.

"This will stimulate national production," Finance Minister Mauricio Cardenas who represents the government on the board, said on Thursday.

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