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UPDATE 2-Colombia central bank holds rate steady, lowers GDP forecast
July 26, 2013 / 7:57 PM / 4 years ago

UPDATE 2-Colombia central bank holds rate steady, lowers GDP forecast

* Q2 growth outlook, weaker currency helps industry

* Gov’t maintains 2013 GDP growth estimate at 4.5 pct

* Economy growth seen faster in coming months

By Helen Murphy and Peter Murphy

BOGOTA, July 26 (Reuters) - Colombia’s central bank held its overnight lending rate steady for a fourth straight month on Friday and cut its 2013 growth forecast after a sluggish first half but forecast an acceleration in growth through the end of the year.

The unanimous decision by the seven-member board to maintain borrowing costs at 3.25 percent was expected by all 25 analysts surveyed by Reuters. The bank said the economy would grow between 2.5 and 4 percent in the second quarter, up from 2.8 percent in the first quarter.

Policymakers have shaved 200 basis points off the lending rate since July last year to help promote consumer spending and industrial output, pushing growth in the economy higher.

Even so, the board cut its forecast for 2013 economic expansion to 4 percent from 4.3 percent. It said the revision was partly explained by the behavior of the world economy and private spending, which has been weaker than expected.

“We had expected the bank to start raising the interest rate some time this year, but with this downward revision of economic growth I think they will likely keep the rate steady until the end of the year,” said Andres Pardo, chief economist at Bogota-based investment fund Corficolombiana.

“The economy is clearly recovering more slowly than expected.”

Finance Minister Mauricio Cardenas, who represents the government on the board, maintained his economic growth figure at 4.5 percent for this year, expecting each quarter to improve on the last. Still, he has been less optimistic in recent days, talking about GDP expansion above 4 percent. He already revised down his growth estimate from 4.8 percent.

“Colombian economic growth is expected to increase throughout the year to the extent that aggregate expenditure reacts to prior monetary policy actions and programs that the national government is running,” the bank said in a statement.

The bank has been able to keep borrowing costs low as inflation remains at the bottom end of its target range of 2 percent to 4 percent. Annual consumer prices in June rose 2.16 percent.

A weaker currency over the last several weeks has helped exporters and industry, the bank said, as local costs come down and imports become cheaper.

Industrial output was lower than the nation’s installed capacity, the bank’s statement said, meaning there is still room for consumer spending to rise without stoking inflation.

Policymakers have sought to counter weak international demand for Colombia’s commodities and a slowdown in industrial output in the $330 billion economy as the global scenario remains uncertain and the nation faces a rash of labor disputes.

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