UPDATE 1-Some Colombian central bankers wanted larger rate cut
* One member called for interest rate to be steady
* Inflation is below bank target range
* Bank reduced the rate to 4.25 percent
By Helen Murphy and Luis Jaime Acosta
BOGOTA, Jan 4 (Reuters) - Some members of Colombia's central bank called for a larger, half-point cut in the benchmark lending rate at last month's policy meeting, saying growth showed signs of deterioration, the meeting's minutes showed on Friday.
The majority of the seven-member board on Dec. 21 voted to reduce the lending rate one-quarter point to 4.25 percent after surprisingly weak third-quarter gross domestic product data. One member called for the rate to be maintained at 4.5 percent.
"Other members underlined the fact that almost all the indicators on the economy's progress indicate it is obviously deteriorating," the minutes said, referring to those calling for a rate cut to 4 percent. It was the final board meeting of 2012.
"Industry is contracting ... in the midst of a sharp fall in the rate of growth of domestic demand for nationally produced products."
After keeping the rate steady since August, the bank last month cut borrowing costs, joining countries like Brazil that sought to shield their domestic economies from slack overseas demand.
Feeble quarterly GDP numbers in construction, mining and civil works set off alarms that the global crisis had hit Colombia harder than previously thought and may further damage the nation's economic drivers in the coming months.
"The growth rates of large scale mining are dropping considerably and construction is evidently contracting," the members calling for a bigger cut argued in the minutes.
The central bank said growth in 2012 would likely be less than 4 percent and pick up again this year.
The majority of the board members felt that a quarter point reduction was appropriate given the "sharper-than-expected" slowdown in the economy blamed partly on the international economic crisis reducing appetite for Colombian goods.
They raised concern about a contraction in spending in civil works and housing but argued that would soon be overcome.
"This tightening is largely explained by exogenous factors that are administrative and regulatory in type and that could be overcome, although only partially, in the short term," the majority of the board said.
They also highlighted stable inflation.
Annual inflation in November at 2.77 percent, below the bank's target range of 2 percent to 4 percent, provides room for a further cut down the line if necessary, economists said.
The call for a half-point reduction "increases the likelihood of more cuts," said Camilo Perez, analyst at Banco de Bogota.
Inflation data for December and full year 2012 will be released on Saturday.
ONE CALL FOR HOLD
The government has been under pressure from industrialists, retailers and exporters to bolster growth as weak demand and a strong currency raised concerns factories could start to consider layoffs just as the jobless rate is falling.
Industrial production rose a timid 1.2 percent in October after two months of falling output. Exports rose 5.8 percent in October, well below the export growth a year earlier of more than 32 percent.
Retail sales slipped 0.3 percent in October, after a 6.1 percent increase the year before. That followed a reduction in household spending after the bank slowed lending earlier in 2012 by raising reserve requirements on consumer credit.
One board member argued that the rate at 4.5 percent was historically low and a sufficient level since household credit remained high. Additional cuts would move the rate further away from what could be considered neutral in an economy that has not suffered from a financial crisis, he said.
The slowdown in the economy was not the only factor to consider in monetary policy and cutting too much could increase "vulnerability" in the productive sector, he said.
"The current policy posture is expansionary and suitable for alleviating a moderate output gap without exacerbating the vulnerabilities of the productive sector," he argued.