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Colombia seen holding interest rate steady in split decision
December 16, 2016 / 1:38 PM / 9 months ago

Colombia seen holding interest rate steady in split decision

BOGOTA, Dec 16 (Reuters) - Colombia’s central bank will likely hold its benchmark interest rate unchanged on Friday for a fifth month to quell inflation even as the economy grows more slowly than expected and policymakers look toward cuts next year.

The bank’s seven-member board will keep the rate at 7.75 percent but the vote is likely to be split again, after two directors voted for a cut last month, analysts said.

The division shows some policymakers are pushing for Colombia’s first rate reduction in nearly four years after the economy grew 1.2 percent annually in the third quarter, less than the 1.5 percent expected by the market.

Economic growth has slowed amid a slump in the price of crude oil, one of Colombia’s leading exports. All analysts in a Reuters poll published this week expect the bank to hold the rate steady.

“The first thing the bank will look at is the balance of local risk and it doesn’t come out very well. I think that’s going to tip the balance to keep the rate stable,” said Camilo Perez, chief economist at Banco de Bogota.

This is the final board meeting in which Jose Dario Uribe will vote, as his 12-year tenure as bank chief ends. He will be replaced in January by Juan Jose Echavarria. Another two policymakers will be replaced in the first quarter.

After a lengthy period in which the bank has battled inflation, there are signs that consumer prices are heading lower toward the 2 to 4 percent target range. Uribe said recently inflation will come within the range by the end of next year.

The slowdown in price rises is fueling the idea the bank could cut rates as soon as January, in what would be the first reduction since March 2013. Inflation hit nearly 9 percent in July but will continue to recede now that a prolonged drought has eased and a truckers strike has ended, the bank has said.

Inflation reached 5.96 percent for the 12 months ending in November, still well above target.

Some economists question how a tax reform being tackled in Congress could impact inflation and the bank’s future decisions. (Reporting by Helen Murphy and Nelson Bocanegra; Editing by Phil Berlowitz)

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