Colombia central bank to hold rate steady as inflation, growth slow

BOGOTA: Colombia's central bank will hold its benchmark interest rate steady for the first time in a year at its meeting next week, as both inflation and the economy slow, a majority of analysts said in a Reuters poll.

Fifteen of 21 analysts in the survey said the bank's seven-member board would leave rates unchanged at 7.75 percent at its Aug. 31 meeting.

"I think the bank will stay in 'wait and see' mode because on one hand there's deceleration of inflation and a re-anchoring to expectations," said Sergio Olarte, analyst at BTG Pactual. "On the other they'll look to see if the economic deceleration that's already being seen is sufficient, too much or not enough." Six analysts polled said the bank would extend rate rises to 12 consecutive months with a 25 basis point hike.

"Despite relatively weak recent data, the necessity to achieve significant reductions in inflation expectations and increase the probability of reaching the target could lead the bank to make further adjustments in the rate," said Jose Vicente Romero of BBVA. The bank has raised the lending rate by 325 points since September of 2015, in a bid to curb high inflation and bring it down toward the long-term target of between 2 percent and 4 percent.

Inflation will fall in August to 0.16 percent, those surveyed said, from 0.48 percent in the same month last year. That would send the 12-month figure down to 8.60 percent, compared with the 8.97 percent reached in July this year.

Full-year inflation estimates for 2016 were up, however, to 6.80 percent, from the 6.50 percent predicted in last month's survey. Inflation will close 2017 at 4.30 percent, the analysts said, up from 4.23 percent in the July survey.

The economy will have expanded 2.2 percent in the second quarter, those polled said, below the 3.1 percent recorded during the same period in 2015, because of the fall in oil prices and lower consumption. Growth figures for the quarter will be released on Aug. 29.

Colombia's economy will grow 2.3 percent this year, below the government's 3 percent target, the analysts said. It will expand 3 percent in 2017, also below the official target of 3.5 percent.

"It's hard to be optimistic in the midst of the 2016 chill," said Wilson Tovar, head of economics at Acciones y Valores brokerage.