UPDATE 2-Colombia ups interest rate to 4 pct, buying more dollars

viernes 20 de junio de 2014 16:13 GYT

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By Peter Murphy and Nelson Bocanegra

BOGOTA, June 20 (Reuters) - Colombia's central bank on Friday raised its benchmark lending rate by 25 basis points for the third straight month, an increase aimed at containing a recent rise in still-low inflation after a surge in first-quarter economic growth.

The seven-member policy-making board increased borrowing costs a quarter point to 4.00 percent, the first time the rate has been that high since January 2013. The decision, reached unanimously, came a day after strong 6.4 percent first-quarter growth was announced.

The bank also extended and doubled the size of its dollar purchases with a plan to buy up to $2 billion between July and September to bolster reserves and compound ongoing efforts to weaken the peso which the government says is too strong.

"We have ample and sufficient ammunition to take part in the foreign exchange market ... to avoid the peso being over-valued," Finance Minister Mauricio Cardenas, a member of the central bank's board, told reporters after the meeting.

The existing dollar purchase program expires at the end of June with planned purchases of $1 billion since April.

Cardenas said expanded currency intervention would also plump up a "cushion" against external shocks to which emerging markets have been particularly vulnerable in recent years, with low interest rates in large economies redirecting speculative capital towards developing economies.

Cardenas said this week Colombia's strong first-quarter growth was the fastest in Latin America and bucked a slowdown in growth that the region's largest economies were currently experiencing.   Continuación...