July 27, 2018 / 7:57 PM / 21 days ago

UPDATE 1-Colombia's cenbank holds lending rate amid likely inflation spike

(Adds comment and detail on inflation)

By Helen Murphy and Julia Symmes Cobb

BOGOTA, July 27 (Reuters) - Colombia’s central bank held the benchmark interest rate steady on Friday as policymakers sought to get ahead of a likely short-term inflation spike that could push consumer prices above its target figure as the economy remains sluggish.

In a unanimous vote, the seven-member board maintained borrowing costs at 4.25 percent, the level held since April. The decision met the expectations of all 25 analysts in a Reuters survey this week.

The bank said that while the economy is beginning to improve, there remains uncertainty about the speed of its recovery.

“On the one hand, it is projected that the excess production capacity will expand in 2018. On the other hand, if the oil price remains at the current levels for a prolonged period or the growing trend of confidence persists, the dynamics of aggregate demand could be better than expected. The uncertainty in this respect is high,” the bank’s statement said.

Brent crude futures increased this week by 1.8 percent to $74.29 a barrel.

The policy meeting is the last in which Mauricio Cardenas will attend as finance minister. He is set to be replaced on Aug. 7 by Alberto Carrasquilla, who will represent the new government on the bank board.

Carolina Soto also joined the board at Friday’s meeting, replacing Adolfo Meisel.

Analysts said the bank would hold the rate due to expectations end-of-year inflation will hit 3.35 percent, above its targeted 3 percent long-term rate.

Annual inflation last month rose to 3.2 percent.

Forecasts for an improved economy also gives the bank room to hold back on providing additional steam via rate cuts.

The bank cut the rate by a total of 350 points between December 2016 and April this year, in a bid to bolster growth in Latin America’s fourth-largest economy. The economy grew 1.8 percent in 2017 and the government says expansion this year will reach 2.7 percent.

A fall in global liquidity, which could lead to lower investment in the country and eventually have fiscal effects, reduced the chance of a cut, analysts said.

“Colombia still has a fiscal structure where the flows of foreign portfolio investment are relevant and in this context ... lowering the rate isn’t necessary or productive,” said Diego Camacho from brokerage Ultraserfinco. (Reporting by Helen Murphy and Julia Symmes Cobb Editing by Marguerita Choy)

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