BOGOTA: Colombia's central bank will probably hold the benchmark interest rate at 4.75 percent at its policy meeting this week, but resume cuts in 2018 to take advantage of lower inflation expectations to help bolster the economy, according to a Reuters poll.
The poll on Monday showed that 12 of 17 analysts expect stability in the reference rate on Thursday, while the remaining five predict the bank will reduce borrowing costs by 25 basis points to 4.50 percent.
Most analysts polled said the bank could maintain the rate - instead of cut - because inflation last month rose a more-than-expected 0.18 percent. But in December consumer prices are forecast to rise 0.26 percent compared with 0.42 percent last year, the poll showed.
"Inflation news was not good and there was a slight upward surprise," said Felipe Espitia, an economist at Alianza brokerage. "Most of the basic inflation indicators increased in November when they had been showing a downward trend."
The pause would come after the bank surprised the market with cuts in both October and November.
Still, some analysts would not rule out another cut this week as the economy continues to show weakness and inflation expectations predict that even with last month's uptick in consumer prices the bank's target range will be met this year and next.
According to the poll, annual inflation this year will come in at 3.95 percent this year, just within the bank's 2 to 4 percent goal, while next year inflation would fall to 3.4 percent.
Meanwhile, survey estimates for economic growth remain at 1.7 percent for this year and 2.5 percent for the next, lower than the government's goals of 1.8 percent and 3 percent respectively.
"We think inflation has already given the bank space to lower the rate to 4.5 percent at the close of the year and leave the rate at a level considered neutral, then continue to cut in 2018," said Daniel Velandia, chief economist for Credicorp Capital.
"That said, the bank has surprised in six of the last 12 meetings, so anything can happen." he said.
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