April 28, 2017 / 1:01 PM / in a year

Colombia central bank may cut rates 25 bps as CPI eases, some may seek more

BOGOTA, April 28 (Reuters) - Colombia’s central bank is likely to cut the key interest rate by a quarter-percentage-point for a third consecutive month at its meeting on Friday, with some policymakers perhaps seeking a bigger cut to bolster economic growth as inflation expectations fall.

The board, which this month will comprise six instead of the usual seven members, will likely reduce borrowing costs to 6.75 percent, meeting expectations of 17 out of 21 analysts in a Reuters survey last week. The remaining four polled expect a half point reduction.

“There are a couple of important things that have happened in recent days. There has been a sharp drop in market inflation expectations measured through public debt and the issue of economic activity” said Camilo Perez, chief economist at Banco de Bogota, referring to weak industrial and retail data.

“This combination of indicators could require a greater monetary expansion, although it should not be forgotten that inflation remains above target,” said Perez, who changed his forecast to a half-point cut from a quarter point last week.

In a split vote in March, four policymakers called for the 25 basis-point reduction, while one wanted a bigger boost to the economy with a 50 basis-point cut and another voted to hold the rate at 7.25 percent to assure inflation is “under control.”

Board member Adolfo Meisel on April 18 said that a 50 basis points cut could be “feasible”.

Policymakers hope that lowering borrowing costs will help Latin America’s fourth-largest economy pick up speed as factories trim output and Colombians hold back on purchases of big ticket items.

And as inflation heads lower - from a high of almost 9 percent in July 2016 - board members have enough space to relax their position, analysts say.

But despite the decrease, to an annual 4.69 percent in March, consumer price expectations are still above the long-term target of 2 percent to 4 percent. Last month’s split vote indicates there is unlikely to be a unanimous decision in the near future.

Only six out of the usual seven policymakers attended the meeting as new board member Jose Antonio Ocampo will take up his post in May. (Reporting by Helen Murphy)

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