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By Julia Symmes Cobb and Helen Murphy
BOGOTA, Oct 30 (Reuters) - Colombia's central bank raised the benchmark interest rate on Friday by a greater-than-expected half point in an effort to stem rising inflation which is already well above the bank's target range, and as risks of an economic slowdown calmed.
The seven-member board decided by majority to boost the lending rate to 5.25 percent. Only one of 18 analysts in a Reuters survey earlier this week had expected a rate rise of a half point; 15 had forecast a quarter-point hike.
The policymakers also revised up the bank's estimate for expansion of gross domestic product to 3 percent from 2.8 percent, as consumer spending and industry show signs of improvement.
"Inflation expectations have increased and the risk of a slowdown in domestic demand, beyond what is consistent with the decline in national income, has slowed," the bank statement said.
The 11-hour meeting was the longest for at least a decade.
The bank also announced extraordinary measures that would help moderate "unjustified" exchange rate increases that could de-anchor inflation expectations and would help add liquidity when needed.
The bank will auction $500 million in call options if the exchange rate reaches 7 percentage points above the moving average of the last 20 days. The option would be valid for one month.
The U.S. dollar has risen 42.9 percent against the Colombian peso over the last 12 months.
"This is in order to temper unwarranted increases in exchange rates, which may contribute to a de-anchoring of inflation expectations, and provide liquidity to the foreign exchange market when significant shortages arise," the board said.
Finance Minister Mauricio Cardenas, who represents the government on the board, said the bank was able to raise the rate by 50 basis points because the risks of an economic slowdown, which contributed to the bank holding the rate steady for 12 months through August, have lessened.
"New economic activity data for the third quarter suggests higher dynamism than what had been projected," the bank said.
The board's decision is a commitment to doing whatever is necessary to bring inflation down to the 2 to 4 percent target range for the year, bank chief Jose Dario Uribe said after the announcement.
Analysts project year-end inflation could reach 5.75 percent. Consumer prices last month rose 5.35 percent.
"The transfer from the depreciation of the peso to consumer prices and a strong El Nino phenomenon will slow the convergence of inflation to the target," the statement said. (Reporting by Bogota newsroom)