June 30, 2017 / 1:02 PM / a month ago

Colombia central bank seen cutting key rate, divided over how much

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BOGOTA, June 30 (Reuters) - Colombia's central bank board is expected to cut the key lending rate on Friday in an effort to boost a sluggish economy, though policymakers are likely divided over the size and pace of cuts as inflation expectations remained above target.

Thirteen of 22 analysts in a Reuters survey published last week predicted a reduction of 25 basis points to 6 percent, while nine expected the trim to be 50 basis points. The board meeting begins at 3 p.m. EDT (1900 GMT).

Bank chief Juan Jose Echavarria indicated this month the rate could come down to as low as 5.25 percent by year end, but the seven-member board has not been unanimous since late last year.

"The debate will focus on the balance of risks between inflation and economic growth below potential," said Carolina Monzon, an analyst at Itau in Colombia.

A cut would mark the sixth reduction in an easing cycle intended to bolster Latin America's fourth-largest economy, hit hard by the global fall in prices for crude oil as it struggled with high inflation.

While the policy board is aware of the need to lower the cost of money to encourage consumer spending, it must ensure the decision does not end up stimulating inflation, which remains above the target range of 2 percent to 4 percent. The bank expects the economy to expand about 1.8 percent in 2017.

"It's the bank's last opportunity to cut the rate because in the second half we'll see an increase in inflation as a result of the base effect of 2016, not counting possible inflationary pressures resulting from the increase in the rate of exchange, said Eduardo Bolanos, an economist at insurer Positiva.

Inflation expectations for the close of this year were up to 4.30 percent in the Reuters poll. Annual inflation in May reached 4.37 percent. (Reporting by Nelson Bocanegra and Helen Murphy; Editing by Jeffrey Benkoe)

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