Colombia central bank seen holding rate longer, hiking less in 2019

BOGOTA: Colombia's Central Bank is expected to hold the benchmark interest rate unchanged at 4.25 percent at next week's board meeting, as policymakers evaluate slowly improving economic outlook and favorable inflation expectations, a Reuters poll showed on Thursday.

According to a survey of 24 analysts, the decision to maintain borrowing costs will extend through April when the bank will start a contraction cycle to contain inflationary risks and align with the international monetary trend. In the December poll analysts expected the first increase in March.

The survey also showed that the interest rate may increase to 4.75 percent instead of the 5 percent expected in last month's poll. By the end of 2020, the lending rate will hit 5.25 percent, in line with higher economic growth.

"There's no desire for the bank to now act because economic indicators at the end of last year show that although the economy is going to recover this year, it will start with little dynamism, and inflation risk analysis gives us reason to think it will be controlled," said Camilo Perez, chief economist at Banco de Bogota.

In terms of inflation, expectations for the end of this year slipped marginally to 3.46 percent from 3.50 percent in last month's survey. By the end of 2020 inflation will likely reach 3.27 percent.

Consumer prices this month are likely to increase by 0.70 percent, leaving the annual rate at 3.25 percent.

Expectations for economic growth in 2019 fell to 3.20 percent, compared with 3.30 percent in the December survey. Growth for next year is seen at 3.50 percent.

"The risk is biased toward lower growth, mainly due to external uncertainty that generates greater risk aversion and as the country's fiscal accounts continue to generate a lot of uncertainty after a much weaker financing law than expected was approved," said Sergio Olarte, economist for Colombia at Scotiabank.

The economy likely expanded 2.60 percent in 2018, lower than the 2.63 percent forecast in the previous survey and the government's goal of 2.7 percent.

The peso currency will close this year at 3,110 per dollar, up 4.3 percent compared with 3,249 per dollar at the end of 2018.