Colombia central bank expected to raise interest rate to 7.25pc

BOGOTA: Colombia's central bank is likely to increase its lending rate by a quarter point to 7.25 percent, the last increase in a 9-month tightening cycle as inflation expectations begin to ease, a Reuters survey showed on Friday.

Fourteen of 18 analysts polled said the seven-member board would raise the key interest rate by 25 basis points at its meeting next week, while another predicted a 50-point rise and the remaining three expected the rate to be held steady.

Should the 25-point estimate prove correct, it would mark the ninth consecutive month the bank has increased the rate, accumulating 275 basis points in raises.

Last month policymakers surprised the market by boosting the rate by 50 basis points in a bid to curb persistent inflation caused by the El Nino drought and currency depreciation.

The board also lowered its economic growth forecast for this year to between 1.5 and 3.2 percent, with 2.5 percent as most probable, down from its previous likely estimate of 2.7 percent.

"Although demand has eased, its levels remain high, which is why we'll see the bank standing by its determination to control inflation," said Wilson Tovar, of Acciones y Valores brokerage.

Colombia's interest rate is the second highest in the region after Brazil.

A high current account deficit and a fresh fall in the peso currency, which has depreciated by 23.4 percent over the last twelve months, are further arguments for raising the rate, analysts said.

"The dollar has recuperated and could continue to pressure the price of goods," said Juan David Ballen of Casa de Bolsa.

"It has generated larger-than-predicted clashes with demand." Consumer prices will rise 0.40 percent in May, compared with an increase of 0.26 percent during the same month last year, analysts said, pushing 12-month inflation to 8.09 percent.

Year-end inflation expectations of those polled were 5.95 percent, up from 5.85 percent in April's survey, above the bank's long-term 2 to 4 percent target range.

Estimates for inflation at the end of 2017 were also up to 4 percent from 3.75 percent.