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UPDATE 1-Colombia central bank cuts rate to 2% as space for more reductions closes

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BOGOTA, Aug 31 (Reuters) - Colombia’s central bank board unanimously cut the benchmark interest rate to a historic low of 2% on Monday, in what analysts say is likely the last move in a reduction cycle meant to boost the economy amid the coronavirus.

In a Reuters survey last week 16 of 17 analysts polled said the seven-member board would trim the rate by 25 basis points, where it will stay for the remainder of 2020.

A second-quarter economic contraction of 15.7% and dire unemployment figures illustrate the need for an additional boost to the economy, the board said in a statement.

“The balance of risks for monetary policy suggests the convenience of providing an additional boost to the economy,” the statement said. “The impact of monetary policy will be greater to the extent that the conditions of the pandemic allow the gradual reopening of the different sectors to continue.”

High liquidity and improved conditions since the start of coronavirus pandemic mean there is lower sovereign risk and adequate access to external financing, the statement said.

“There has been an adjustment in the current account deficit which is expected to continue throughout the year and which reflects lower external financing needs,” it added.

Board chief Juan Jose Echavarria acknowledged the likelihood of further cuts is slim.

“That space has been getting smaller,” he said in a virtual press conference.

The cut is the sixth in a row and marks 225 basis points in reductions since March.

The bank has sought to soften more than five months of coronavirus quarantine with the cuts, as businesses have shuttered and urban joblessness has soared to just under 25%. A lockdown ends at midnight on Tuesday.

Inflation is set to end 2020 between 1% and 2%, well below the long-term target of 3%.

The government estimates the economy will contract by 5.5% this year, while the bank predicts a contraction of between 6% and 10%. (Reporting by Carlos Vargas, Julia Symmes Cobb and Oliver Griffin Editing by Chris Reese and Lisa Shumaker)

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