UPDATE 1-Colombia central bank cuts rate to 1.75%, IMF increases flexible credit line

(Adds decision, quotes from statement)

BOGOTA, Sept 25 (Reuters) - Colombia’s central bank board cut the benchmark interest rate to a historic low of 1.75% on Friday, in a split decision in line with a narrow majority of analyst predictions, as it continues to bolster the economy amid fall-out from coronavirus.

The International Monetary Fund (IMF) has increased the country’s flexible credit line to $17.3 billion to help it weather the crisis, board chief Juan Jose Echavarria said.

The government may release about $5.3 billion as part of its fiscal plan, he said. The credit line, valid until April 2022, was originally for $10.8 billion.

In a Reuters survey this week 14 of 26 analysts polled said the seven-member board would trim borrowing costs by 25 basis points, with the remaining 12 predicting a hold because of worries over capital outflows.

The reduction was backed by four of the seven board members.

“Although data for July reflects a slight improvement in the unemployment rate at the national level (19.8%), it shows a marked deterioration in the labor market and in household disposable income,” the board said in a statement.

The financial system is responding to six previous months of rate cuts, the statement added.

“Significantly, most of the interest rates in the financial system have picked up on reduction in the monetary policy rate, in a context where increases in the volumes of commercial and consumer credit are clear.”

The board has cut the rate by a total of 250 basis points over the last seven months as the country held a national coronavirus quarantine which sent unemployment soaring and shuttered businesses.

The bank predicts GDP will contract between 6% and 10% this year, despite an end to lockdown measures.

“Following the relaxation of lockdown measures, we have seen a slower rate of deterioration in economic activity, although it continues to contract.”

The bank renewed forward contracts in dollars until Oct.30, it said in a separate statement. (Reporting by Nelson Bocanegra and Oliver Griffin Writing by Julia Symmes Cobb Editing by Matthew Lewis and Alistair Bell)