April 26, 2019 / 6:50 PM / 3 months ago

UPDATE 1-Colombia's central bank holds interest rate at 4.25 pct to help bolster growth

(Adds detail on inflation, put options, context)

BOGOTA, April 26 (Reuters) - Colombia’s central bank held its benchmark interest rate steady at 4.25 percent at its meeting on Friday, as inflationary pressure remains in check and the economy benefits from an expansionary monetary policy.

The unanimous decision by the seven-member board means borrowing costs have remained at their lowest since June 2014 for a full year, when it last cut the rate 25 basis points in a bid to stimulate the sluggish economy.

The vote met expectations of all analysts in a Reuters survey last week.

Policymakers said inflation is on track to meet the 3 percent target goal. They continue to project economic growth of 3.5 percent this year and estimate that excess production capacity will decrease.

“Observed inflation will be close to the target and upside risks are low,” the bank said in a statement. “The effects on the Colombian economy derived from external conditions continue to be uncertain.”

“Despite the recent satisfactory growth data in the United States and China, the outlook for global growth continued to moderate. The market expects that the reference rate of the Fed will remain stable or be reduced in the following two years.”

While analysts are satisfied with how the bank has controlled inflation - last month annual consumer prices rose 3.21 percent - they doubt the economy will manage to expand the 3.6 percent forecast by the government as the economies of Colombia’s main trading partners begin to slow.

“Countries with which Colombia has more dynamic trade will slow down in 2019,” said Bancolombia in a note to investors. “The deterioration in global activity that began the previous year and will persist during 2019 will imply a less solid expansion of Colombian business partners.”

Given that weak global growth, the market expects borrowing costs to be increased a quarter point this year.

“In the short term, no rate decisions are expected because inflation is controlled - it even surprised on the downside - and the economy has lost some of the momentum from start of the year so needs some help,” said Juan David Ballen, director of economic studies at the Casa de Bolsa brokerage.

The central bank also said it would auction another $400 million of put options to accumulate international reserves on April 30. The options will be valid between May 2 and June 4, 2019, it said in a separate statement. The bank does not have a defined total amount to acquire. (Reporting by Helen Murphy, Nelson Bocanegra and Carlos Vargas Editing by James Dalgleish and Rosalba O’Brien)

Nuestros Estándares:Los principios Thomson Reuters
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