Colombia central bank expected to leave interest rate unchanged

viernes 25 de abril de 2014 09:30 GYT

By Peter Murphy and Nelson Bocanegra

BOGOTA, April 25 (Reuters) - Colombia's central bank on Friday is expected to hold the benchmark lending rate unchanged for the 13th straight month as economic growth continues to gather pace, inflation remains controlled and uncertainty over U.S. monetary policy persists.

The bank's seven-member board, headed by Jose Dario Uribe, is likely to hold borrowing costs at 3.25 percent, according to 26 of 28 analysts surveyed by Reuters earlier in the week. Two analysts forecast a quarter-point rate increase.

But the growth-promoting rate is expected to come to an end some time after May with a quarter point increase to prevent inflation moving beyond the bank's 3 percent target level.

"The strong numbers in retail sales and industrial confidence as well as the evidence on a stronger recovery in the U.S., will bring to the meeting the discussion of the start of the hiking cycle in the coming months," Deutsche Bank said in a bulletin. "We expect the central bank to keep the interest rate unchanged in the April meeting."

The bank also may be loathe to raise borrowing costs just yet to avoid exacerbating a surge in the peso that occurred in March because of an influx of foreign investment into financial markets.

U.S. investment bank J.P. Morgan last month raised its weighting for Colombian sovereign debt in two of its indexes, prompting new investment flows. An interest rate increase would raise returns on bonds and cause the currency to strengthen further as demand for it increased.

Finance Minister Mauricio Cardenas said this week the central bank was momentarily speeding up dollar purchases because of the stronger peso. That will reduce the cost of building up reserves. The total $1 billion it plans to buy from April to end-June has not been altered, he said.

"Up until April, there's still a shortage of information that is leaving (the board) unsettled, believing that external conditions continue to generate much uncertainty," said Francisco Chaves, chief economist at Corredores Asociados brokerage.   Continuación...