BOGOTA, June 24 (Reuters) - Colombia’s central bank is expected to leave the benchmark interest rate unchanged on Wednesday, as policymakers grapple with the twin constraints of faster inflation and an economy weakened by the plunge in global oil prices.
A Reuters poll of analysts last week showed all respondents expect the bank to hold rates steady at 4.5 percent for a 10th straight month and most see it being kept at the same level until the end of the year at least.
Economic growth is likely to slip below 4 percent this year for the first time since 2009, while inflation has hovered above the upper limit of the central bank’s 2 percent to 4 percent target range since February, limiting policymakers’ room for maneuver.
“We expect the central bank to keep rates in line with market consensus,” said Sergio Olarte, analyst at BTG Pactual.
It will “maintain its neutral tone at the Wednesday meeting and inflation expectations unchanged, emphasizing that the correction of macroeconomic imbalances are key to healthy long-term growth.”
Policymakers will likely take a careful look at comments this week by United States Federal Reserve Governor Jerome Powell, who said he would be prepared to raise interest rates twice this year as the economy there improves.
Rate increases in the United States would make its bonds a more attractive investment and could draw portfolio investment out of Colombia. That would maintain pressure on the Andean country to keep interest rate spreads competitive to avert currency weakening and higher inflation that would result.
“That’s a risk the bank can’t take. Basically the risk involved in not lowering rates in this scenario is the possibility of an increase in rates in the U.S.,” Javier Gomez, chief economist at Bogota-based brokerage Serfinco.
He expects the next interest rate movement to be a cut however, but one that would not come before early 2016.
Colombia had an enviable run of strong growth in recent years with low inflation due to spare productive capacity, but lower oil prices have slowed expansion and left the peso at its weakest since the global crisis of 2009.
The government expects the economy to grow 3.6 percent this year versus analysts’ estimates of 3.1 percent.
In an interview with Reuters last week, Adolfo Meisel, one of the seven central bank board members, said inflation is no longer expected to return to within the 2 percent to 4 percent target range by year-end. (Reporting by Peter Murphy, Helen Murphy and Nelson Bocanegra; Editing by Lisa Shumaker)