* Cenbank board decision to hold rates was unanimous
* Move seen as pause in tightening, not end of cycle
* Monetary body did not mention any new currency measures
* Board would like to see weaker peso currency
(Recasts, adds analyst comment, details)
By Nelson Bocanegra and Eduardo Garcia
BOGOTA, Aug 19 Colombia's central bank paused
its tightening cycle on Friday after six straight months of
interest rate hikes, citing concerns over turbulence in global
financial markets and its possible impact on economic growth.
The bank held its benchmark interest rate steady at 4.50
percent in a unanimous decision after dissenting votes at its
past two policy meetings.
The decision caught some analysts off guard after the bank
raised growth forecasts for Colombia last month.
Economists saw it as a temporary pause to gauge the effects
of recent market turmoil. Many analysts expect the bank to
resume rate increases in order to keep a lid on rising
inflation in Latin America's fifth largest economy.
"They're talking about a pause, a pause is not a completion
of the hikes, I believe that what they're doing is taking a
breath and then they'll continue (with the increases)," said
Andres Pardo, head of economic research at Corficolombiana.
PRUDENT TO HALT
Colombia was one of the last countries in Latin America to
start upping rates and its central bank has faced pressure from
the government to hold borrowing costs steady, as Chile and
Peru have done. [ID:nN1E77H0WW] [ID:nN1E77A21B]
Still, the bank struck a pessimistic tone in its statement,
saying inflation was rising above the mid-point of the central
bank's 2 percent to 4 percent target.
Nineteen of 35 economists polled by Reuters this week
expected the bank to raise rates 25 basis points. The remaining
16 said the bank would hold rates. [ID:nN1E77G13Y]
As fears grow the developed world is shifting from slow
growth to stagnation, the bank said it was prudent to see what
effect market turbulence might have on economic growth.
"The increased uncertainty in international financial
markets and its possible effect on the growth of the global
economy, that was a key element," Jose Dario Uribe, general
manager of the central bank, told reporters, following the
From the United States and Italy to Japan and Greece, slow
growth is hobbling the capacity of governments to service their
debts, spooking markets and sapping confidence and so further
darkening the economic outlook. [ID:nL6E7J81DL]
To many economists, high-growth emerging markets like
Colombia appear better placed to weather the storm.
NO NEW CURRENCY MEASURES
Colombia has grappled with the dilemma of whether to raise
rates to combat inflation. Higher rates have made their assets
more attractive, stoked their domestic currencies and made
exports less competitive.
Chile, Peru, Brazil and Colombia have been intervening in a
bid to tame their strong currencies but are struggling given a
weak dollar abroad and high interest rate differentials with
the United States which attract capital inflows.
Colombia's monetary authority did not mention on Friday any
new measures to combat the strength of the peso currency
COP2=STFX, which has firmed 7.2 percent so far this year.
The bank's current intervention of purchasing a minimum of
$20 million daily is set to expire on September 30 -- the date
of the board's next policy meeting.
"Definitely (the exchange rate) does not leave us calm (at
the current level), and as we've said, I would say, that all
members of the bank's board would like to have a more
depreciated exchange rate," Uribe said.
(Writing by Jack Kimball; Editing by Andrew Hay)