UPDATE 3-Colombian economy surges in 1st quarter; rate hike seen likely

Thu Jun 19, 2014 3:40pm EDT

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(Adds changing interest rate forecast)

By Nelson Bocanegra and Peter Murphy

BOGOTA, June 19 (Reuters) - Colombia's economy grew 6.4 percent in the first quarter compared with the same period last year, the government said on Thursday, the strongest first-quarter result since 2007 and well above analysts' predictions of a 5.1 percent expansion.

The surprising reading is likely to reinforce expectations the central bank will raise the benchmark interest rate on Friday a further 25 basis points to 4 percent, following two such increases at the bank board's last two meetings.

A Reuters survey earlier this week showed 20 of 23 analysts expected a 25-basis point increase, but four of those 20 said on Thursday they now expected a more aggressive 50-basis point hike. The majority still foresaw a 25-point rise but said further hikes were now more likely this year.

"Tomorrow's rise will still be 25 (basis) points, but this surprise could decide the path for the central bank and extend increases during the year, so projections will be revised," said Oscar Jaulin, an analyst at the Serfinco brokerage.

The government also revised the full-year 2013 growth figure upward to 4.7 percent from 4.3 percent previously.

The Andean economy has been accelerating fairly steadily over the past year due to an expansionist monetary policy which had held the benchmark interest rate at 3.25 percent for 13 months until the hikes began at the end of April.

Growth in the first quarter compared with the fourth quarter of 2013 was 2.3 percent, said the national statistics agency DANE.

LAGGING SECTORS RECOVERING

Faster growth has begun to nudge up inflation which last year was at its lowest level since 1955. Inflation is expected to reach or slightly surpass the central bank's projection of around 3 percent this year, the midpoint of its 2 percent to 4 percent target range.

Finance Minister Mauricio Cardenas said the government was "cautiously" maintaining its growth forecast of 4.7 percent for 2014 despite the strong first-quarter result.

He also said the central bank would extend its dollar purchase program beyond the end of June, when it was scheduled to finish. The measure is aimed at taming the strengthening of the peso, which policymakers say is too strong and dents competitiveness.

"The country is doing well economically. We've managed a recovery in the sectors that were lagging - agriculture and industry," he said.

Cardenas said Colombia's strong first-quarter growth made it the fastest expanding economy in the world in the January-March period except for China, bucking a slowdown that he said was taking place in Latin America's larger economies.

Construction was by far the fastest-growing sector of the economy, expanding 17.2 percent in the first quarter from a year ago. The financial sector, agriculture and mining all grew between 5.6 percent and 6.1 percent. The industrial sector grew 3.3 percent.

Higher coal output and coffee production also helped spur economic growth. (Reporting by Nelson Bocanegra; Writing by Peter Murphy and Julia Symmes Cobb; Editing by Chizu Nomiyama, G Crosse and Paul Simao)

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