* Analysts see rate unchanged amid growth, low inflation
* Colombian currency, bonds weakened over Fed stimulus talk
* Rate unchanged since March after cuts summing 200 bps
By Helen Murphy
BOGOTA, June 28 Colombia's central bank will
likely hold its benchmark interest rate steady for a third
straight month on Friday as benign inflation gives policymakers
room to keep nourishing the economy's weak manufacturing and
The seven-member board - headed by Jose Dario Uribe - is
expected to maintain borrowing costs at 3.25 percent, according
to 24 analysts polled by Reuters earlier this week. Another two
predict the bank will opt for further stimulus and cut the rate
a quarter point.
Even though policymakers see the economy improving in the
coming months, things are still pretty anemic.
Annual growth in the first quarter reached 2.8 percent,
missing Finance Minister Mauricio Cardenas' estimate of 3
percent, but meeting the central bank's. For full year 2013, the
government has lowered its forecast to 4.5 percent from an
earlier 4.8 percent, but most economists polled by Reuters
think that is too optimistic.
The government is fighting to boost exports and industrial
production, which have dragged down overall growth in the $330
billion economy as factories struggled with a strong peso, which
increases labor costs and pits domestically made goods against
Strong currencies hit exporters the most since salaries,
pensions and health benefits are paid in local currency, but
overseas buyers pay in devalued dollars.
Cardenas trumpeted industrial output in April as the best in
five years, but economists said the growth - reported last week
to be 8.4 percent - was not evidence of a recovery, but the
result of Easter falling in different months in 2012 and 2013.
Yields on local sovereign bonds have shot up about two
percentage points in the last month on expectations the United
States will rein in expansionary monetary policy, reducing what
has been strong demand for emerging market assets in the last
But that was not enough to tilt analysts' expectations
toward a rate cut.
"There are those speculating that the liquidity and bond
situation could lead to a cut, but our basic expectation is that
they will leave the rates unchanged," said Catalina Tobon, head
of economic research at the Skandia financial group.
Colombia has already cut its key lending rate by 200 basis
points since mid last year to counter weak international demand
for commodity exports and a slowdown in domestic demand.
Inflation is at the lower end of the bank's target range of 2
percent to 4 percent and has provided room for the board to
continue cutting, according to analysts.
The board likely hopes that maintaining its level of
expansion will encourage additional consumer spending as the
U.S. economy shows signs of improvement.
EYE ON THE PESO
Colombia has attracted record foreign direct investment in
recent years, as a U.S.-backed offensive against Marxist rebels
and paramilitaries made the nation a much safer place to do
business. While the investment helped bolster the economy, it
also pushed the currency higher against the dollar.
Cardenas had made weakening the currency a priority to help
manufacturers and exporters, which have struggled for years with
a strong peso.
The peso has strengthened steadily over the last
decade, with a pause in 2008, from about 2,800 pesos per dollar
at the end of 2003 to less than 1,800 at its strongest,
prompting heavy lobbying by industrialists.
The peso tumbled last week after Federal Reserve Chairman
Ben Bernanke said the Fed's policy-setting committee would
likely slow the pace of its stimulative bond purchases in 2013
if the U.S. economy continues to grow.
A heavy dose of verbal and some actual intervention in the
foreign exchange market helped weaken the currency before
Bernanke made his comments. With the peso currently at 1,923 per
dollar, Cardenas has said he has "done his job."
Investors will now be looking for hints on when the bank
will dismantle its program of daily dollar purchases aimed at
easing gains in the currency.
The central bank has bought millions of dollars daily on the
spot market for months to ease gains in the currency, which last
year was among the world's strongest, but some board members
have raised concerns about the impact of continuing the program
for too long.
"We're not expecting a change, since the bank would prefer
to maintain its course and have the choice of increasing or
decreasing the amount of daily purchases, as it has been doing,"
said Camilo Perez, head of economic research at Banco de Bogota.
Cesar Vallejo, a board member of Colombia's central bank,
told Reuters recently the bank could decide to amend, or even
scrap, the program if necessary.
At last month's monetary policy meeting, the board decided
to extend the program through September and buy at least $2.5