UPDATE 1-Colombia halts year-long rate tightening cycle; cuts expected

(Adds bank and analyst comment, details from bank statement)

BOGOTA, Aug 31 (Reuters) - Colombia’s central bank held its benchmark interest rate on Wednesday for the first time in a year, as policymakers grappled with a sluggish economy and fast-climbing consumer prices that have put their 2017 inflation target at risk.

The seven-member board decided by majority to maintain the lending rate at 7.75 percent after raising it 325 basis points, meeting analysts’ expectations it would halt its tightening cycle.

The board voted six-to-one to hold the rate, with one member calling for another quarter-point hike. Analysts expected the bank’s next move would be to ease rates, possibly before the end of 2016.

Policymakers have struggled with the twin constraints of slowing economic growth and stubbornly high inflation, which at 8.97 percent in July was more than double the bank’s target range of 2 percent to 4 percent.

The decision to give breathing room to the economy comes after the government revealed on Monday that second-quarter gross domestic product grew a slower-than-expected 2 percent annually, a seven-year-low.

“The dynamics of the economy have been weaker than projected and inflation and expectations remain high and exceed the goal,” the bank said in a statement.

“It is expected that the temporary supply shocks that have affected inflation and its expectations will begin to reverse in the coming months.”

The year of rate increases should help bring inflation down toward the target range in 2017, the bank said.

Bank chief Jose Dario Uribe said there should be a significant decline in inflation beginning in August.

Finance Minister Mauricio Cardenas, who had called for rates to be held, revised his 2016 growth estimate downward on Monday to 2.5 percent from 3 percent. The central bank did not alter its annual growth estimate of 2.3 percent.

The weaker growth numbers prompted some economists to foresee a cut in borrowing costs sooner rather than later.

“It was striking, the weakness seen in most of the leading numbers,” said Otman Gordillo, chief economist at brokerage AdCap Securities in Bogota.

Mining, which includes petroleum production, fell 7.1 percent during the quarter.

“This necessarily should make the central bank move downward quickly, maybe before the end of 2016,” said Gordillo, adding that rates could be at 7.25 percent by year end.

Inflation has been pressured by the El Nino drought, a 45-day trucker strike which ended last month, and the weakened peso currency, which have all raised food and energy prices, sending inflation outlooks higher. (Reporting by Helen Murphy; Editing by Andrew Hay)