August 31, 2017 / 1:04 PM / a year ago

Colombia central bank expected to make final rate cut of year

BOGOTA, Aug 31 (Reuters) - Colombia’s central bank board is expected to make its seventh and final interest rate cut of the year at its meeting on Thursday, taking advantage of falling inflation to try to boost the economy.

The board has been grappling for more than two years with the pressures of a weak economy, caused by the global drop in oil prices, and inflation that reached almost 9 percent, more than double the bank’s 2 to 4 percent target range. Twelve-month inflation fell to 3.4 percent last month.

The bank has enacted six straight cuts during a cycle that began in December, trimming the benchmark rate by 225 basis points.

In a Reuters survey last week, 18 of 19 analysts expected the seven-member board would lower the rate again on Thursday, by a quarter point to 5.25 percent. The remaining analyst anticipated a cut of 50 basis points.

Thirteen of those polled said the cut would be the final reduction this year, while the other six leaned toward one more cut.

“It will be the final movement of the rate this year, but I would like to hear the discussion, which like recent meetings, will be more relaxed given the adjustment of inflation and growth,” said Catalina Tobon, chief economist at Old Mutual.

“I think the board will eventually take a pause of a few months to see how monetary policy plays out and return in 2018 with some cuts, considering the space between observed GDP and growth potential,” Tobon added.

Analysts expect the bank to return to cuts next year, in a bid to bolster sluggish economic growth, which they expect will hit 1.7 percent in 2017 and 2.5 percent next year.

The economy grew 1.3 percent in the second quarter, slightly less than expected by the market.

Board chief Juan Jose Echavarria has said the margin for further cuts is closing because although inflation has fallen, it is still expected to be 4.14 percent at the end of this year, above the target range. (Reporting by Nelson Bocanegra; Writing by Julia Symmes Cobb; Editing by Peter Cooney)

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