June 22, 2016 / 8:07 PM / 2 years ago

UPDATE 1-Colombia central bank hikes rate to 7.5 pct to ease inflation

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BOGOTA, June 22 (Reuters) - Colombia’s central bank raised the benchmark interest rate to 7.5 percent on Wednesday and left analysts uncertain whether the increase would mark the last hike after ten months of rises meant to combat stubbornly high inflation.

The seven-member board decided by majority to boost the lending rate by 25 basis points, meeting the forecast of 18 out of 20 analysts in a Reuters survey last week.

Analysts said the increase could be the last in the cycle, which has raised borrowing costs by 300 basis points, but that there may still be board members in favor of further hikes.

The policymakers’ statement on the decision left the door open to more rises in borrowing costs, said Felipe Campos, head economist at Alianza brokerage.

“The bank is saving its flexibility card in case inflation in the coming months obliges them to raise the rate.”

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. Analysts polled by Reuters expect inflation will finish this year at 6.20 percent.

Others thought it was likely Wednesday’s rise would be the last.

“The statement gave away little in terms of the next steps for interest rates but we suspect that this will be the last hike in the cycle,” Capital Economics said in a note to investors.

While bank chief Jose Dario Uribe did not give a definitive opinion on further increases, Finance Minister Mauricio Cardenas, who represents the government on the board, told journalists this month’s hike will mark the end of the cycle.

“The job is done now,” Cardenas said. “We don’t want to go overboard.”

“This rate should be the rate that allows an adjustment so inflation can converge to within the target range next year,” the minister added.

Some board members leery of stunting growth could vote to hold the rate in future, though economic expansion of 2.5 percent in the first quarter was in line with estimates by the bank.

The board said in a statement that while food costs and a depreciation of the peso currency have continued to put pressure on inflation, the economy is adjusting in an “orderly fashion” to low oil prices and the effects of the El Nino drought.

Prices for crude are higher than expected, the current account deficit has fallen, and exports have increased more than predicted, meaning national income may fall less than thought, the board added. (Reporting by Julia Symmes Cobb and Nelson Bocanegra, Additional reporting by Carlos Vargas; editing by Diane Craft)

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