* Inflation decelerating, consumer credit a concern
* Colombia expects peso volatility to continue
* Decision was unanimous
(Adds details, quotes from finance minister)
By Eduardo Garcia and Nelson Bocanegra
BOGOTA, May 28 Colombia's central bank on Monday
held its benchmark interest rate steady for a third straight
month as slower inflation and economic woes in the euro zone
eased concerns about inflationary pressures.
The board's decision to keep the overnight lending rate at
5.25 percent was unanimous.
"Recent developments in Europe increased the risks of a
strong recession on that continent," the central bank said in a
statement. That "adds uncertainty to the growth forecasts in
Still, Colombia's economy is on track to grow 5 percent this
year as forecast, Finance Minister Juan Carlos Echeverry told
reporters after the rate decision.
Consumer price inflation has slowed in recent months despite
an increase in bank lending and concerns that households are
borrowing too heavily
The bank said that although inflation forecasts have
increased slightly, policymakers consider the risks of
accelerating prices are moderate.
Consumer prices rose 0.14 percent in April, on top of a 0.12
percent gain in March, taking annual inflation to 3.43 percent
Analysts expect that year-end inflation will ease toward the
mid-range of the central bank's target of between 2 percent and
"In general we feel that the central bank is calmed, with
the economy growing within its potential and inflation within
target," said Patricia González, an analyst with Banco de
Bogota. "This stability in the lending rate could continue for
the rest of the year."
Increased inflation since February 2011 led the bank to
engage in a year-long cycle of interest rate hikes, but many
analysts now say board members are unlikely to raise borrowing
costs again this year.
Policymakers no longer seem as worried about price increases
but have in recent months warned that household borrowing is
growing at a much faster pace than income.
Car sales are at a record high, buoyed by ads that offer
vehicles for as little as $50 a month with no down payment.
Department stores offer discounts to shoppers that use credit
cards, and banks cold-call clients offering pre-approved loans.
Colombia earlier this month, adopted additional reserve
requirements on new consumer credit in a bid to improve bank
portfolios as past due loans continue to increase.
The central bank said consumer credit growth is slowing,
although it warned that households are still borrowing heavily.
"In the second half we'll see some turbulence coming from
Europe and that should lead to moderation from families and
companies," Echeverry said.
The central bank did not announce measures to contain the
peso rally, which has strengthened 5.3 percent
against the U.S. dollar so far this year. The peso gains have
slowed in recent weeks after reaching 9.7 percent in early May.
Echeverry said he expects volatility in the exchange rate to
continue in the coming months.
"What the exchange rate is reflecting in the past few weeks
is the international uncertainty, that's why it'll be very
difficult to forecast the exchange rate by the end of the year,
because it will likely fluctuate widely," he said.
The bank's decision on Monday matched a forecast in a
Reuters poll last week, in which all but one of 27 economists
surveyed said they expected policymakers not to raise the
benchmark interest rate.
(Writing by Eduardo Garcia; Editing by Helen Murphy)