June 29, 2018 / 7:50 PM / 4 months ago

UPDATE 1-Colombia's central bank holds interest at 4.25 pct, as expected

(Adds details of decision)

By Julia Symmes Cobb

BOGOTA, June 29 (Reuters) - Colombia’s central bank held the benchmark interest rate at 4.25 percent on Friday, as policymakers seek to prevent inflation from accelerating amid an uncertain recovery in economic growth.

The unanimous decision met the expectations of all analysts in a Reuters survey last week, who agreed the bank will maintain borrowing costs for the remainder of 2018, before raising the rate next year.

Higher food prices and a peso depreciation could push inflation upward, the seven member board said in a statement. The bank’s ideal rate of inflation is 3 percent, with 2 to 4 percent as the long-term target range.

“A rebound in the price of food that affects expectations and delays the convergence of inflation to 3 percent,” was a risk, the board said. “Likewise, a stronger-than-expected depreciation of the peso is transferred to domestic prices. Again, the uncertainty about these factors is high.”

Uncertainty about the speed of economic recovery was also a factor in the vote, the statement added.

“On the one hand, it is projected that the excess production capacity would expand in 2018. On the other hand, if oil prices remain at current levels for a prolonged period or the growing trend of confidence persists, the dynamics of aggregate demand could be larger than expected.”

Both the government and the bank have set an economic growth goal of 2.7 percent for 2018, up from the 1.8 percent GDP growth in 2017.

The economy grew 2.2 percent in the first quarter thanks to the finance and insurance sectors. Data suggests low growth will continue in the second quarter, the statement said.

The bank cut borrowing costs in April by a quarter point, the end of a reduction cycle that trimmed 350 basis points from the rate in a bid to boost growth. (Reporting by Julia Symmes Cobb Additional reporting by Carlos Vargas and Nelson Bocanegra Editing by Richard Chang and Alistair Bell)

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