* Cenbank paused cycle of interest rate cuts in April
* Gov't betting on improved GDP growth
* Bank may extend dollar purchases
By Helen Murphy and Eduardo Garcia
BOGOTA, May 31 Colombia's central bank is likely
to hold its key interest rate on Friday for a second straight
month as the country's economic growth outlook improves on a
government stimulus package, already-low borrowing costs and an
improved overseas scenario.
In a Reuters poll on Monday all 22 analysts expected
policymakers to maintain borrowing costs at 3.25 percent. It was
the first such poll in 12 months in which all economists
predicted the same monetary policy move.
The question mark for investors will be if the bank votes to
extend its dollar purchase program, for how long and at what
Colombia has cut its key lending rate by 200 basis points
since July last year to counter weak international demand for
commodity exports and a slowdown in domestic demand in the $330
billion economy. In March the bank accelerated cuts, slashing 50
basis points to the current level.
"Doubts remain in Europe, but there are expectations for an
improved U.S. economy," said Munir Jalil, economist at
Bogota-based Citigroup. "So on the international front, there is
light at the end of the tunnel for Colombia's economy."
The Andean economy grew more slowly in the first quarter of
this year against the same period a year ago but is expected to
speed up in the second quarter, the bank has said of GDP data
due in June. Last year, economic growth eased to 4 percent, much
lower than the 6.6 percent expansion in 2011.
Economists reckon the government's recent measures to stoke
economic growth, which include accelerated state spending in
infrastructure and aid to the construction sector, will prove
effective and reduce the need for any more cuts this year.
The government measures are aimed at bringing economic
growth back up to potential of 4.8 percent, though most
economists, including those at the central bank, expect growth
of around 4.3 percent this year.
"Consumer and investor confidence surveys in the past two
months have shot upwards, that's the threshold to a much more
dynamic economic activity. Therefore it's working," President
Juan Manuel Santos said on Thursday, referring to the stimulus
The government is fighting to boost industrial production,
which has fallen in the last five months as factories struggle
with a strong peso that pits them against cheaper imports and
increased labor costs.
Manufacturing slumped 11.5 percent in March, the sharpest
year-on-year drop since mid 2009. The drop could be due to the
earlier-than-usual Easter holiday, prompting fewer working days
The currency has strengthened steadily over the last
decade - with a respite in 2008 - from about 2,800 pesos per
dollar at the end of 2003, prompting heavy lobbying by exporters
and industrialists. Last year alone it gained 9 percent, but a
potent dose of intervention, both verbal and actual, has brought
it down about 7 percent this year.
The currency closed on Thursday at 1,891 per dollar.
The bank buys at least $30 million daily on the spot market
in a program that ends on Friday. Of the 22 economists polled by
Reuters, seven see the board extending the program through
August, while three expect an extension until September and six
until the end of the year.
The remaining analysts predict the bank will halt the
program as monetary policy in the United States shows signs of
being less active in the foreign exchange market.
"The big question is what the bank decides to do with the
dollar purchasing program; if the rate decision is announced
late, it will be because they are debating that," said Jalil.
Finance Minister Mauricio Cardenas last week said he planned
to ask the central bank's board members to extend the program
In the last few days the currency has also moved closer to
the government's "neutral range" of between 1,900 and 1,950
pesos per dollar.
"Cardenas has been very transparent about what he wants the
board to do. The kite has soared recently, now we need to see
how much more wind he wants to put under it," said Jalil.