April 25, 2014 / 8:21 PM / in 4 years

UPDATE 1-Colombia cenbank surprises with 0.25 pct rate increase

(Adds Finance Minister comments, background on rate moves, byline)

By Peter Murphy and Nelson Bocanegra

BOGOTA, April 25 (Reuters) - Colombia’s central bank unexpectedly raised the benchmark lending rate for the first time in more than two years on Friday, as policymakers sought to ward off inflationary pressure as economic growth gathers pace.

The bank’s seven-member board, headed by Jose Dario Uribe, increased the lending rate a quarter point to 3.50 percent, surprising investors who had expected it to hold the rate steady for a 13th month. The last time borrowing costs were increased was February 2012.

Colombia’s benchmark interest rate had been held steady at 3.25 percent since March 2013, after a run of cuts that totaled 200 basis points since July 2012.

Finance Minister Mauricio Cardenas said the decision to raise the rate was based on the Andean nation’s accelerating economic activity which has been bolstered by the long period of comparatively low interest rates.

He said the time had come for a period of more normal interest rates for the country’s economy.

The central bank maintained its forecast range of 3.3 percent to 5.3 percent for economic growth with 4.3 percent the most likely figure.

Cardenas said J.P. Morgan’s decision in March to increase the weighting of Colombia’s sovereign debt in its indexes may not have as big an impact on the country’s currency as analysts have speculated.

The currency strengthened sharply in the days following that announcement as a surge of foreign cash flowed in to buy bonds and stocks.

Colombia’s inflation rate has begun to climb after falling to its lowest since 1955 last year.

Reporting by Bogota newsroom; Editing by Bernard Orr

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