January 27, 2017 / 1:30 PM / in a year

Colombia central bank likely to cut rate to 7.25 pct to boost growth

BOGOTA, Jan 27 (Reuters) - Colombia’s central bank board is expected to cut its benchmark interest rate by 25 basis points to 7.25 percent at a meeting on Friday, in an effort to stimulate growth as indicators point to an economic slowdown.

The decision by the seven-member board is unlikely to be unanimous, since some policymakers are still concerned inflation figures will not fall to within the bank’s 2 to 4 percent target range by the end of the year, analysts said.

Policymakers unexpectedly cut the rate to 7.5 percent in December. The 25 basis point cut, backed by four board members, was the first reduction in almost four years.

“This will be a very difficult meeting,” said Yenny Monzon, an analyst at CorpBanca in Bogota. “We think the cutting cycle will continue because concerns about a weakening economy remain, and are even being reaffirmed.”

“But we still don’t anticipate a unanimous decision because inflation expectations were up last month.”

Analysts predicted in a Reuters survey last week that Colombia’s economy will grow 2.4 percent this year, down from an estimate of 2.8 percent in a survey the month before.

Economic growth has slowed amid a slump in the price of crude oil, one of Colombia’s leading exports.

Inflation expectations for the close of 2017 were up to 4.46 percent in the central bank’s survey this month, from 4.19 percent in December, above the target range. Those predictions could move some to vote in favor of a rate hold.

Finance Minister Mauricio Cardenas, who represents the government on the board, said this month that he sees “good reasons” for another rate cut. He said he expects the Colombian peso to remain steady against the dollar and for inflation to extend its fall, leaving room for a further reduction.

Meanwhile, new board chief Juan Jose Echavarria has suggested to local media that it may be premature to keep reducing the interest rate.

Board members who voted against the December rate cut have said there still are not sufficient indications inflation will fall to within the target range by 2017.

Inflation hit nearly 9 percent in July last year, but has receded now a prolonged drought has eased and a truckers’ strike has ended. Inflation was 5.75 percent during 2016, still well above target. (Reporting by Nelson Bocanegra and Julia Symmes Cobb; Editing by Helen Murphy and Alistair Bell)

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