May 27, 2016 / 7:12 PM / 2 years ago

UPDATE 1-Colombia central bank ups rate to ease stubborn inflation

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BOGOTA, May 27 (Reuters) - Colombia’s central bank raised its benchmark lending rate on Friday for a ninth consecutive month, to 7.25 percent, in a bid to ease stubborn inflation.

A majority of the bank’s seven-member board decided to boost borrowing costs by 25 basis points, meeting the expectations of 14 out of 18 analysts in a Reuters survey last week.

The increase may help calm inflation, which is running at almost double the upper level of the central bank’s long-term 2 percent to 4 percent target range, and cool internal demand, which has fallen less than expected by the bank.

This may be the end of the nine-month tightening cycle, during which the bank raised the rate by 275 basis points, analysts have said. Consumer prices in April were 7.93 percent higher year on year, just below inflation during the previous month.

The additional rate increase was required because food prices and a weak peso prevented a bigger reduction in inflation, the board said.

“The slight decline in annual inflation in April was mainly due to decreases in energy prices,” the board said in a statement. “However, the increase in food prices and the transfer of nominal depreciation to consumer prices continue to exert upward pressure on inflation.”

Finance Minister Mauricio Cardenas, who represents the government on the board, said the cycle is reaching its end.

Despite long-running inflation worries, the economy is adjusting to the fall in oil prices in an “orderly fashion,” the statement said.

Colombia’s economy has been hit hard by the drop in international crude prices, which had provided a fourth of national income via taxes and royalties.

“The risk of an excessive slowdown in domestic demand is moderate and excessive spending on national income persists, as reflected in a high current account deficit,” the bank said.

Policymakers held their economic growth estimate for the first quarter and for the full 2016 steady at 2.5 percent for each, though Cardenas said he expects first-quarter expansion to be slightly higher.

The board said it would not hold any additional auctions to fend off peso weakening, but that there were many options open to it if it decides to intervene in future. (Reporting by Bogota newsroom; Writing by Julia Symmes Cobb; Editing by Helen Murphy and Steve Orlofky)

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