March 6, 2019 / 5:45 PM / 5 months ago

Colombia central bank may hold off on rate rises due to low inflation -analysts

BOGOTA, March 6 (Reuters) - Colombia’s unexpectedly low February inflation figure may lead the central bank to postpone rate rises or even hold borrowing costs steady this year, analysts said on Wednesday.

Government statistics agency DANE said on Tuesday that consumer prices were up 0.57 percent last month, below the 0.73 percent analysts had predicted in a recent Reuters survey.

Twelve-month inflation was 3.01 percent in February, its lowest level since August 2014 and just a hair above the central bank’s long-term target range of 3 percent.

“In the absence of inflationary pressures and with a negative growth gap - the economy growing below its potential - there is no rush to start a normalization process with rate rises,” said Munir Jalil, head economist at BTG Pactual Colombia.

Until mid-January Jalil had estimated there would be two rate rises this year. Now he predicts the board will hold the rate all year.

The bank has held the benchmark interest rate at 4.25 percent since April of last year, when it reduced borrowing costs by 25 basis points in a bid to stoke economic recovery.

Analysts had predicted prior to the February inflation figure that the bank board would raise the rate twice this year, taking it to 4.75 percent.

“The expectations of central bank rate rises - at least for the first half of the year - are evaporating,” said Acciones y Valores brokerage analyst Wilson Tovar, who had also previously forecast two rate increases in 2019, beginning in April.

Inflation results caused a slip in the yields of local Treasury bonds, called TES, on Wednesday. Paper set to come due in July 2024 had a yield of 5.90 percent, down from 5.99 percent on Tuesday.

“When consumer prices behave as they have in the last few months, the inflation risk premium charged by investors tends to be reduced,” Bancolombia said in a note to investors. (Reporting by Nelson Bocanegra Writing by Julia Symmes Cobb, Editing by Rosalba O’Brien)

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