Colombia central bank likely to hold rate after seven months of cuts

BOGOTA, Oct 30 (Reuters) - Colombia’s central bank board is set to leave the benchmark interest rate unchanged at its Friday meeting, the first hold after seven months of cuts which took borrowing costs to a historic low.

All 13 analysts in a Reuters survey this month agreed the seven-member board will hold the rate at 1.75%, as consumer prices stop falling and consumption normalizes after more than five months of coronavirus lockdown.

Monetary policy will began to lean toward controlling potential increases in inflation, after rate cuts meant to buoy up the economy, which the government says will contract 5.5% this year because of the pandemic.

The board was divided at its September meeting, with four members voting for a rate reduction and the remaining three backing a hold.

“Several of the arguments that the majority of the board had last month to vote for a cut in the rate, especially related to inflation, are diluted because of the surprising September figure,” said Fabio Nieto, chief economist at Banco Agrario.

“We don’t see space to lower the rate,” Nieto said, adding a rate cut could “provoke imbalances like capital outflows and an undesired depreciation in the exchange rate.”

Consumer price growth was 0.32% in September, taking 12-month price growth to 1.97%. Both figures were well above market expectations.

Analysts in a Reuters poll this week expect inflation to reach 1.84% at the close of this year, up from the 1.7% predicted in September’s poll but well below the long-term target rate of 3%. (Reporting by Nelson Bocanegrea Writing by Julia Symmes Cobb; editing by Grant McCool)