October 26, 2018 / 6:07 PM / 23 days ago

UPDATE 1-Colombia central bank holds key lending rate at 4.25 pct, as expected

(Adds comment from bank statement, details on the economy)

BOGOTA, Oct 26 (Reuters) - Colombia’s central bank held the benchmark interest rate at 4.25 percent on Friday, as a slight improvement in the economy and easing inflation allowed the board to focus more on international market turbulence.

The seven-member board voted unanimously to maintain the rate at 4.25 percent for a seventh month, meeting expectations of 22 analysts polled by Reuters last week.

The bank discussed possible fallout from trouble in other emerging markets even as Colombian inflation continues close to the bank’s target and economic growth indicators show moderate signs of improvement.

“The aversion to global risk has increased. In this environment, the risk premium measures of emerging countries, including Colombia, have increased slightly and their currencies have depreciated against the dollar,” the bank said in a statement.

The bank has held its benchmark interest rate steady since April, after making cuts of 350 basis points beginning in December 2016 in a bid to bolster economic recovery.

The bank expects Colombia’s gross domestic product to expand 2.7 percent this year and 3.35 percent next, after growing 1.8 percent in 2017.

“Indicators of economic activity for the third quarter suggest that the economy will have continued with growth similar to that registered in the first half of the year. The technical team estimates that the underutilization of the productive capacity of the economy persists,” the statement said.

Analysts predict the interest rate will be increased sometime around March 2019 because of accelerating growth in Colombia’s economy, Latin America’s fourth largest.

Twelve-month inflation to September was 3.23 percent, close to the long-term target of 3 percent.

International market turbulence is beginning to affect Colombia, with the peso currency falling to its weakest level in two and a half years this week as investors retreated from emerging markets.

“We continue to expect unchanged rates into 2019...We see the most likely step being a gradual hiking cycle toward normalization next year as growth continues to accelerate,” said Nomura in a note to investors.

The central bank will next meet in December. (Reporting by Helen Murphy, Nelson Bocanegra, Julia Symmes Cobb and Carlos Vargas Editing by Chizu Nomiyama)

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