Colombia central bank to vote on interest rate, with market split on potential decision

FILE PHOTO: General view of Colombia's central bank in Bogota, Colombia October 9, 2019. Picture taken October 9, 2019. REUTERS/Luisa Gonzalez

BOGOTA (Reuters) - Colombia’s central bank board on Friday will debate whether to continue a cycle of rate cuts meant to boost the coronavirus-battered economy or pause after months of reductions.

Fourteen of the 26 analysts surveyed by Reuters this week said the seven-member board will reduce borrowing costs to a historic low of 1.75%, while the remaining 12 predicted policymakers will hold steady at 2%.

The quandary has emerged amid low inflation figures and record-low growth, which could motivate the board to continue with a cut, and the risk of capital outflows, which would increase the current account deficit and potentially inspire a hold.

“In our main scenario, the central bank should have finished cuts,” said Juan David Idrobo, a specialist in economic studies at Fidubogota. “However, we recognize there exists a significantly high probability of an additional cut.”

“There will be considerations about the differential rates, the sustainability of the level of rates during (economic) reactivation, inflation expectations for next year and lack of transmission of monetary policy,” Idrobo added.

The board has cut the rate by a total of 225 basis points over the last six months as the country held a national coronavirus quarantine which sent unemployment soaring and shuttered businesses. The bank predicts GDP will contract between 6% and 10% this year.

Reporting by Nelson Bocanegra in Bogota; Writing by Julia Symmes Cobb; Editing by Matthew Lewis