July 26, 2019 / 7:13 PM / a month ago

UPDATE 1-Colombia central bank keeps interest rate, growth predictions unchanged

(Adds Finance minister’s comments, background)

BOGOTA, July 26 (Reuters) - Colombia’s central bank board held its benchmark interest rate for the fifteenth month running and left growth expectations unchanged at its meeting on Friday, despite acknowledging that inflation will likely continue to rise in the short-term.

The unanimous decision to keep borrowing costs at 4.25% was expected by all 18 analysts in a Reuters survey last week.

Those surveyed had predicted possible modifications in the board’s growth expectations, amid slow economic expansion and inflation figures that are moving away from the 3% annual target rate.

The bank may update its expansion prediction next week, board chief Juan Jose Echavarria said.

The central bank has projected economic growth of 3.5% in 2019, while those surveyed by Reuters are less optimistic, expecting 3.15%. The government, meanwhile, has predicted 3.6%.

“The Colombian economy is growing not just below its potential but below what we would like to see,” said Finance Minister Alberto Carrasquilla, who represents the government on the board. “But we’re in the middle of an underestimated bounce-back.”

“In this context, I think that the interest rate is in line with the recovery process.”

Investments in machinery and equipment and some recovery in public consumption suggest growth in the second quarter will have been higher than the 2.8% registered in the first, the board said in its statement accompanying the decision , but growth is still below potential.

This week the IMF made a slight cut to its Colombia growth prediction, lowering it to 3.4% from 3.5% previously, amid starker cuts for other Latin American countries.

Analysts expect inflation will end the year at 3.5%, but the board said in its statement the indicator would return to near the target.

“(June) inflation increased to 3.43%, mainly due to the behavior of food prices. This and other supply shocks could raise inflation in the coming months, but it is expected to resume its convergence to the target later,” the statement said.

Echavarria will present the bank’s quarterly inflation report on Aug. 12.

Reporting by Carlos Vargas, Nelson Bocanegra and Julia Symmes Cobb in Bogota Editing by Richard Chang and Matthew Lewis

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