By Nelson Bocanegra
BOGOTA Colombia's central bank board is likely on Friday to hold the benchmark interest rate steady for the first time in nearly two years, with the market anxiously awaiting signs of when policymakers may begin to cut rates as inflation cools.
All 22 analysts polled in a Reuters survey last week said the seven-member board will hold borrowing costs at 13.25% after raising them 1,150 points since September 2021 to control inflation.
Federal Reserve Chair Jerome Powell signaled on Thursday that U.S. central bankers are likely to resume their interest rate hike campaign after a break earlier this month. At least two more hikes are widely expected.
"The fall in total inflation will allow the bank to finalize its cycle of rises," financial holding company Corficolombiana said in a note, though it added that still-high consumer price medians will keep borrowing costs high to ensure inflation falls toward the bank's long-term 3% target.
Annual inflation was 12.36% in May, its lowest since October 2022, but still more than four times the target.
A majority of the analysts polled expect the bank to hold the rate for a few months before beginning cuts in September or October, taking advantage of inflation's fall to avoid a more severe slowdown in economic growth.
The economy is set to grow 1% this year, down from 7.3% growth in 2022.
"The economy is suffering and real rates at current levels are unsustainable. Furthermore, the recent rebound of the peso gives the central bank ample room for maneuver," said Andres Abadia, chief economist for Latin America at London's Pantheon Macroeconomics. "We'll start to see cuts in the third quarter."
Analyst predictions are in line with recent comments by Finance Minister Ricardo Bonilla, who represents the government on the board, that policymakers will begin reductions in a few months.
According to the median of the survey, the interest rate will close this year at 11.75%, 2024 at 7% and 2025 at 5%.
(Reporting by Nelson Bocanegra; Writing by Julia Symmes Cobb; Editing by Richard Chang)
