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By Helen Murphy and Julia Symmes Cobb
BOGOTA, Sept 25 (Reuters) - Colombia’s central bank increased its benchmark interest rate a quarter point on Friday for the first time in a year, to stem inflation which picked up as drought and persistent currency devaluation boosted prices even as the economy slows.
In a unanimous decision the seven-member board decided to up the lending rate to 4.75 percent, resuming a tightening cycle and meeting the forecast of 13 of 23 analysts in a Reuters survey.
There are increased risks that inflation is becoming unhinged from the bank’s target range of 2 percent to 4 percent and market expectations, the bank said, as a devaluation of the currency and drought from the El Nino weather phenomenon causes price increases.
“The risk of a lasting rise in inflation and an un-anchoring of inflation expectations has risen, while the risk of an excessive slowdown in economic activity has not presented a noticeable change,” the statement said.
Twelve-month inflation was above the target range in August, reaching 4.74 percent.
Still, the board said inflation would likely slow to 3 percent. It did not say when.
The bank statement surprised some analysts because in recent days several board members had shown a tendency to keep the rate steady at 4.5 percent.
“I am very worried by the message it is sending - because in the last few days various members of the board have given signs they would leave the rate stable,” said Andres Pardo, chief economist at investment holding Corficolombiana.
“The very act of raising the rate, and that it was unanimous, shows a lot of concern on the board about inflation,” he said, adding the bank would likely raise the rate to 5 percent before year-end.
Finance Minister Mauricio Cardenas, who represents the government on the board, revised down the economic growth forecast for 2015 to 3.3 percent, from 3.6 percent previously.
On Thursday he had said he was not worried about inflation because weaker economic growth would help stem price pressure.
The country will likely grow 3.5 percent next year, Cardenas said.
Bank chief Jose Dario Uribe said that the rate increase was a “clear signal” the board is committed to managing inflation.
The statement said that the possibility of the U.S. Federal Reserve increasing its interest rate has generated additional pressures on the peso.
The peso has weakened 56 percent over the past year. (Additional reporting by Nelson Bocanegra; Editing by Andrew Hay)