UPDATE 1-Colombia cenbank has space to cut rate, must be careful: Vallejo

Fri Mar 15, 2013 1:23pm EDT

By Jack Kimball

BOGOTA, March 15 (Reuters) - Colombia's central bank has room to lower its benchmark interest rate but the seven-member board must also be careful and consider other factors, said one of the members, Cesar Vallejo.

Colombian policymakers have slashed the benchmark interest rate by 150 basis points since mid-2012 to its current 3.75 percent, the lowest in the region, as they battle against weakening manufacturing data and overseas sales.

"There's space in the sense that there's lower inflation, output growth is below its potential. In that sense there's space but there are also other factors, for example, people's indebtedness, government plans for public investment," he said.

"One must be careful when lowering interest rates because any circumstance can change the scenario," Vallejo, considered a more neutral member of the board, told journalists on Friday.

The central bank will meet on March 22 to decide on its interest rate when two new co-directors appointed by President Juan Manuel Santos will participate for the first time.

Colombia will also release a series of important economic data next week including gross domestic product for the fourth quarter and full-year 2012.

Industrial production fell in seven out of 12 months last year, and retail sales remained weak. Exports have fallen in six of the last 12 months.

Finance Minister Mauricio Cardenas told local radio on Tuesday he expects economic growth to have been between 3.8 and 4 percent last year, slightly higher than the central bank's estimate of 3.6 percent but lower than an initial forecast.

Colombia's economy expanded 5.9 percent in 2011.

In late February, Carlos Gustavo Cano, the most expansionist member on the bank's board, said the central bank needed to continue its expansive monetary policy for "a good while".

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