Colombia central bank seen holding interest rate at 4.5pc

BOGOTA: Colombia's central bank board is expected to hold the country's interest rate unchanged for a fourth straight month at its rate-setting meeting on Friday amid a weak global economic scenario that has cut the Andean country's key earnings from oil exports.

All 15 analysts told Reuters in a survey published on Monday they expect the bank to hold the rate at 4.5 percent and the majority see the bank maintaining that rate for all of next year.

Global crude oil prices have plunged about 40 percent since June but Colombia's oil income in dollars has fallen by only 5 percent according to data from the national statistics agency DANE, as forward sales delay the impact of the lower price.

The decline in crude will likely mean Colombia's economy will grow 4.5 percent in 2015, down from an earlier 4.8 percent target, Finance Minister Mauricio Cardenas said on Monday.

The mining and oil-dependent economy grew 4.2 percent in the third quarter, the government said Monday.

That was the slowest growth since the first quarter of 2013 but analysts still see 2014 growth at a median 4.9 percent versus the government's 4.7 percent goal.

One key question is whether the board will extend its dollar-buying program which expires this month or resume entering into option contracts for dollar sales to limit peso volatility.

The currency has shed about 25 percent of its value against the US dollar this year.

Most analysts said they did not believe the bank would adopt any measure to help the peso recover value.

The bank's expiring dollar-buying program had the opposite intent of weakening the currency which hit 1,843 to the dollar in July to boost the competitiveness of Colombian exports. It ended trade on Thursday at 2,315 to the dollar in volatile trade.

"The Bank of the Republic could stop buying dollars on the market, but I don't think it will reactivate its volatility control scheme given that on previous occasions it was shown to be not the best of tools," said Juan David Ballen, analyst at brokerage Casa de Bolsa.

With analysts' median forecast for 2015 inflation at 3.2 percent, within the central bank's 2 to 4 percent target range, the board remains relatively free from pressure to hike rates though a weaker peso has begun to raise the price of imports.

Analysts see 2014 inflation at 3.6 percent, versus 3.5 percent in the last survey.