June 22, 2016 / 1:32 PM / 2 years ago

Colombia central bank looks set to raise lending rate to 7.5 pct

BOGOTA, June 22 (Reuters) - Colombia’s central bank will likely raise its benchmark interest rate to 7.50 percent on Wednesday, in what could be the final increase in a 10-month tightening cycle meant to combat high inflation as policymakers disagree on further hikes.

The seven-member board is expected to vote for a rate increase of 25 basis points to its highest level in seven years, according to 18 of 20 analysts polled by Reuters last week. The two other analysts said the board would hold borrowing costs steady.

Should the survey prove correct, it would mark the tenth consecutive month the central bank has increased the rate, accumulating 300 basis points in raises.

Analysts said a majority of the board would vote in favor of an increase in a bid to anchor still-high inflation expectations and price pressures as economic growth slows down.

“I think in the end that argument will win this month’s meeting,” said Camilo Perez, chief economist at Banco de Bogota.

Twelve-month inflation was 8.20 percent through May, more than double the central bank’s long-term 2 percent to 4 percent target range.

Inflation will reach 6.20 percent this year, analysts said in the survey, up from the 5.95 percent predicted in last month’s poll.

Depreciation of the peso currency, which has fallen 17.6 percent in the last 12 months against the dollar, has also put pressure on prices.

Still, policymakers worried about recent economic figures may vote to hold the rate, analysts said, contrasting with board members who want to increase borrowing costs by 25 or even 50 basis points.

The government has recently maintained its 3 percent growth target for the year, but increased its expected fiscal deficit to 3.9 percent of GDP, from 3.6 percent previously.

Finance Minister Mauricio Cardenas, who represents the government on the board, last week said policymakers must be “prudent” with increases to avoid damaging demand and that rate rises “are coming to an end, if they have not already ended.”

Various other board members have commented in recent months that increases to the lending rate are nearing their end, while others have said decisions must hinge on developments reflected in coming economic indicators.

Brazil is the only Latin American country with active monetary policy that has higher borrowing costs than Colombia. (Reporting by Nelson Bocanegra; Writing by Julia Symmes Cobb; Editing by Richard Chang)

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