December 29, 2016 / 9:51 PM / 2 years ago

Colombia cenbankers against rate cut see continued inflation risks

BOGOTA, Dec 29 (Reuters) - Members of Colombia’s central bank board who were against a 25 basis point rate cut at the bank’s December meeting cited concerns about the risks of inflation, minutes released on Thursday showed.

In a split decision, four members of the seven-person board voted to reduce the lending rate to 7.5 percent at the meeting - the first reduction in almost four years - as inflation shows signs of heading down toward the bank’s target range of 2 to 4 percent.

Economic growth has slowed amid a slump in the price of crude oil, one of Colombia’s leading exports. Inflation hit nearly 9 percent in July, but has receded now that a prolonged drought has eased and a truckers strike has ended.

According to the minutes, board members who were against the cut argued that though inflation is beginning to drop toward the target, there still are not sufficient indications that it will fall to within the target range by 2017.

“The most significant risks are those derived from diverse indexation mechanisms of prices and salaries and of the possible effects of changes in monetary policy in the United States and Europe,” the minutes said.

Latin America’s fourth-largest economy will likely end the year with 5.6 percent inflation, which would mark a second year in a row the figure has been above the target range.

Some board members emphasized that inflation expectations were up slightly over the last month.

“In this environment, a reduction in interest rates may carry the risk of reinforcing the change in expectations for inflation, which could generate instability in monetary policy and costs,” the minutes added. (Reporting by Nelson Bocanegra and Julia Symmes Cobb; Editing by Leslie Adler)

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