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UPDATE 2-Colombia central bank raises benchmark lending rate to 4.5 pct
August 29, 2014 / 6:46 PM / 3 years ago

UPDATE 2-Colombia central bank raises benchmark lending rate to 4.5 pct

(Adds central bank director quote, oil output concern)

By Peter Murphy and Nelson Bocanegra

BOGOTA, Aug 29 (Reuters) - Colombia’s central bank raised its benchmark interest rate by a quarter percentage point on Friday for the fifth straight month to keep a lid on inflation as growth quickens, but said falling oil output could begin to crimp demand in the economy.

The decision by the bank to move further away from a long stretch of monetary stimulus with a rate increase to 4.5 percent was reached by majority and was expected by 23 of 26 analysts surveyed this week in a Reuters poll.

Colombia’s economic growth has been strong this year, surging 6.4 percent in the first quarter, causing the bank to raise its forecast for expansion to around 5 percent in 2014, up from 4.3 percent previously.

“With this increase of 25 basis points what we expect is to maintain inflation within the expected level of 3 percent and have stable growth around the potential level which is a figure around 5 percent,” said finance minister and member of the bank’s rate-setting board, Mauricio Cardenas.

The government’s official growth forecast remains 4.7 percent though it says 5 percent could be achieved.

Some analysts say the string of hikes after lending rates held steady at 3.25 percent for 13 straight months, is soon to end because of headwinds from lower government revenues from oil and a weak global economy limiting demand for exports.

OIL INCOME DOWN

Central bank chief Jose Dario Uribe said a decline in oil output this year over last could cool demand in the economy. Bomb attacks causing lengthy shut-downs of oil pipelines have been the main reason for the 2-3 percent output drop this year.

“The decline in oil production from last year and the drop in the international crude price implies a reduction in income from this source that could affect the behavior of internal demand,” Uribe said.

Colombia produces close to 1 million barrels of oil per day and the commodity is its single biggest export.

Nonetheless, finance minister Cardenas said the economy was going through an “excellent moment” with falling unemployment, a comfortable level of inflation and good growth that is taking overall output towards the economy’s full potential.

Uribe said a recovery in the economy of the United States, the largest single buyer of Colombian exports, would help improve external demand in the coming quarters.

Despite this year’s growth spurt and expansion of 4 percent or more every year since 2010, inflation remains controlled. The central bank expects price growth of around 3 percent this year, the mid-point of its 2-4 percent target range.

The bank did not announce any additional measures. Its dollar purchase program aimed at weakening the peso, runs until the end of September, when the bank will have the option to extend it. The peso has weakened about 3 percent this month.

For the full central bank statement please click (Additional reporting by Julia Symmes Cobb; Editing by Andrew Hay and Grant McCool)

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