February 24, 2017 / 2:02 PM / a year ago

Colombia rates seen on hold in central bank split over growth, high inflation

BOGOTA, Feb 24 (Reuters) - Colombia’s central bank is likely to hold the benchmark interest rate steady for a second month on Friday as board members struggle to ease inflation even as the economy remains sluggish.

The board, which this month will work with six members instead of the usual seven, is expected to maintain borrowing costs at 7.50 percent in a split vote as board members tussle over whether inflation or slow growth is the greater risk.

Ten out of 15 analysts in a Reuters poll earlier this week said inflation expectations were still too high following a rebound at the end of last year, and that the bank’s 2-4 percent target was at risk again.

The remaining five see a 25-basis-point cut to help stimulate consumer confidence and the economy.

The expectation that rates will be held steady was strengthened this week as the government revealed slightly better-than-expected gross domestic product figures for the fourth quarter and full-year 2016.

The economy grew 1.6 percent in the fourth quarter versus a year ago, more than the 1.5 percent forecast by the market. In 2016, growth reached 2 percent, down from 3.1 percent in 2015 but more than the 1.8 percent expected by analysts.

Latin America’s fourth-largest economy has been hit by a slump in global oil prices and is struggling with a rise in inflation. Crude oil is Colombia’s biggest export and leading source of foreign currency.

The government also launched a plan to help growth.

“With the plan, the government is in the driving seat to boost growth, taking the burden off the central bank, so it can concentrate on controlling inflation expectations,” said Juan David Ballen, strategist at brokerage Casa de Bolsa.

Still, going forward there could be a change in the recent 4-to-3 voting split following the exit last month of board member Carlos Gustavo Cano, who told Reuters he had voted to maintain the rate. He has been replaced on the panel by Gerardo Hernandez, who will join in March.

For agenda reasons, President Juan Manuel Santos was unable to swear in Hernandez for this month’s meeting.

“Cano’s departure - one of the most hawkish on the board - could well swing the vote to a cut. While a cut decision wouldn’t surprise us, we’re still inclined toward the stability scenario,” said Camilo Perez, chief economist at Banco de Bogota.

Finance Minister Mauricio Cardenas, who expects 2.5 percent GDP growth this year, has called for a cut. (Reporting by Helen Murphy; Editing by Leslie Adler)

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