BOGOTA: Colombia's central bank will tussle over whether to cut the key interest rate gradually or step on the accelerator at next week's meeting as policymakers worry about consumer confidence and economic growth, while inflation remains above target, a Reuters poll showed on Friday.
Of 22 analysts surveyed, 13 said the bank would reduce its benchmark rate by 25 basis points to 6 percent, while the remaining nine expected a cut of 50 basis points to 5.75 percent.
If the forecast proves correct, it would be the fifth straight month that the bank has relaxed monetary policy and the sixth rate cut since the beginning of the bearish cycle in December.
Analysts - and the central bank's board - are divided on the size of the cut, given the risks that inflation could creep up again due to the recent depreciation of the peso currency, which makes imported goods and services more expensive.
"While we acknowledge the potential for a 50-basis-point cut in June, especially given the weak first-quarter economic data, we believe that the central bank will proceed cautiously," said Fily Camara, Latin America country risk analyst at Fitch Group's BMI Research unit.
"Overall, we expect an additional 75 basis points of cuts in 2017, bringing the benchmark rate to 5.50 percent by year-end."
A rate cut decision next week would come as inflation expectations begin to improve. The poll showed analysts expect inflation to fall to 4.30 percent this year, from 4.45 percent they forecast in last month's survey. For next year, they see it slowing to 3.5 percent.
In June, annual inflation fell to 4.08 percent, close to the bank's target of 2 percent to 4 percent. A year ago, it reached almost 9 percent.
With consumer prices coming down, the bank wants to focus on bolstering the economy, which analysts in the poll expect to expand a modest 1.8 percent, according to the survey. That is slower than the government's forecast of 2.3 percent.
The economy is also expected to improve next year.
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