(Adds bank comment, detail on growth, inflation)
By Helen Murphy and Julia Symmes Cobb
BOGOTA Dec 16 Colombia's central bank
unexpectedly cut the benchmark interest rate to 7.5 percent on
Friday as policymakers determined that weak economic growth was
a more pressing risk for the Andean country than inflation that
was still high.
In a split decision, the seven-member board decided to
reduce the lending rate by 25 basis points - the first reduction
in almost four years - surprising all analysts in a Reuters
survey this week.
Four members voted to put the economy's growth at the
forefront of policy as inflation shows signs of heading down
toward the bank's target range of 2-4 percent. Most analysts had
expected the first cut to come during the first quarter, perhaps
as soon as January.
Last month there were signs policymakers wanted a reduction
sooner, following data that showed the economy grew 1.2 percent
annually in the third quarter, less than the 1.5 percent
expected by the market.
Economic growth has slowed amid a slump in the price of
crude oil, one of Colombia's leading exports.
"Domestic demand fell ... due to lower investment and
slowing consumption. These results and the new economic activity
figures for the fourth quarter suggest that throughout 2016
economic growth could be slightly below 2 percent," the bank
said in its statement.
After a lengthy period in which the bank has battled
inflation, there are signs that consumer prices are heading
lower toward the target range. Bank chief Jose Dario Uribe said
recently inflation will come within the range by the end of next
"Inflation continues to decline faster than anticipated ...
The effects of several supply shocks that have affected
inflation and its expectations continue to reverse and this
trend is likely to continue," the bank said.
Inflation hit nearly 9 percent in July but has receded now
that a prolonged drought has eased and a truckers strike has
ended, the bank has said. Inflation reached 5.96 percent for the
12 months ending in November, still well above target.
Some economists question how a tax reform being tackled in
Congress could impact inflation and the bank's future decisions.
"The structural reform proposal submitted by the government
to Congress is a key action that contributes to long-term growth
by strengthening fiscal sustainability, fostering macroeconomic
stability and preserving credit ratings," the bank said.
This was the final board meeting in which Uribe voted, as
his 12-year tenure as chief ends. He will be replaced by Juan
(Reporting by Helen Murphy, Julia Symmes Cobb, Nelson
Bocanegra, Luis Jaime Acosta Carlos Vargas and Monica Garcia;
Editing by Chizu Nomiyama)