* Independent board faced government pressure for rate cut
* Bank sees GDP growth between 2.5 pct and 4.5 pct in 2013
* Economy growing below potential
By Helen Murphy and Nelson Bocanegra
BOGOTA, Jan 28 Colombia cut its key lending rate
a quarter point for a third straight month to protect the
economy from a global slowdown and some policymakers called for
a steeper reduction in a sign further easing may be ahead.
Colombia's central bank board reduced its overnight lending
rate by 25 basis points to 4 percent in a widely expected move
after weakness in the industrial and export sectors sparked
concern the economy was stalling. Strong capital inflows have
boosted the value of the peso against the dollar and hurt
manufacturers and exporters.
The bank said it saw little risk in cutting its benchmark
interest rate to its lowest level since May 2011.
"The Colombian economy is growing below its potential,
observed and projected inflation are falling below the target of
3 percent, and there is no looming upward pressure on it in the
near future," the bank said in a statement after its decision.
With the split in the board over the size of the cut, some
analysts saw a further rate cut in February.
"The characteristics of the economy haven't changed and with
inflation expectations stagnant below target, it's clear the
government wants more monetary stimulus ... I'm expecting
another rate cut in February" said Pedro Tuesta, U.S.-based head
of strategy for Latin America at 4Cast Inc consultancy.
A Reuters poll last week found all but one of 34 economists
had expected the bank to cut the rate on Monday.
Bank chief Jose Dario Uribe said the decision was not
unanimous as some board members wanted a bigger reduction.
"The decision to lower rates was unanimous," Uribe told
reporters. "But some wanted to lower rates and some wanted to
While the central bank is independent under the
constitution, the government pressured for a rate cut more than
usual in recent days. President Juan Manuel Santos last week
said he would "ask the board to continue lowering interest
DOLLAR BUYING PROGRAM
In a bid to ease gains in the currency, the bank also
stepped up its daily dollar purchases to at least $30 million
between February and May from $20 million or more now. The bank
will spend at least $3 billion.
The new intervention level replaces a program that was set
to run through March.
In some ways, Colombia is the victim of its own success as
improved security over the last decade opened up many parts of
the country to more investment especially in oil and mining
whose dollar inflows are a key reason for the peso's gains.
"I think you start to see more aggressive if not heterodox
policy responses if the current strategy of buying $30 million
day doesn't work," said Bret Rosen, senior Latin America
strategist for Standard Chartered in New York.
"But that is a last resort. Perhaps if we break 1,750 or
lower do they start to think that way."
The peso closed on Monday 1,779.75 per dollar.
Citing economic models, Finance Minister Mauricio Cardenas
said that equilibrium for the peso was about 8 percent weaker
than the current rate.
Exporters and manufacturers have complained that their
industries are being hobbled by the rising currency. A lower
interest rate attracts fewer dollars to Colombia, reducing
pressure on the peso.
The strong peso, which gained almost 9 percent last year,
hurts Colombia's exporters and manufacturers because they earn
in dollars but pay costs in pesos. They are also being hit by
weak international and domestic demand.
Feeble third quarter numbers in construction, mining and
civil works set off alarms that the global crisis had hit
Colombia harder than previously thought and was damaging the
nation's economic drivers.
The government announced measures last week to help
manufacturing as declines in the sector in six of the eleven
reported months last year sparked concern factories could
consider layoffs just as the jobless rate is falling.
In November, industrial output fell 4.1 percent compared
with a year earlier when it rose 5 percent.
Given the weak economic numbers, the government has revised
down its GDP forecast for last year to 4 percent from an earlier
prediction of 4.8 percent.
The bank said the rate cut was aimed at getting the economy
back to near its productive capacity this year, without
jeopardizing the bank's inflation target or the country's
The monetary authority estimated an economic expansion this
year of between 2.5 percent and 4.5 percent with likely growth
of around 4 percent.
Uribe has repeatedly said the bank's main responsibility is
to keep inflation under control and prevent bank lending from
encouraging too much household debt.
Inflation last year reached 2.44 percent, comfortably within
the bank's target range of 2 percent to 4 percent.
"A good part of monetary policy decisions are based on how
inflation looks for this year and the minutes of the last
meeting are clear that it's below what the bank was expecting,"
said Andres Langebaek, an economist at financial entity Grupo
Bolivar in Bogota.