Colombia central bank holds benchmark interest rate at 9.50% in surprise move

By Nelson Bocanegra and Carlos Vargas

BOGOTA (Reuters) -Colombia's central bank held the benchmark interest rate at 9.50% on Friday, surprising the market, which expected policymakers to vote for a second consecutive 25 basis point cut.

The decision was backed by five members of the seven-member board. One member voted for a cut of 25 basis points, while another voted for a 50 basis point-cut.

In a Reuters poll earlier this week, 16 of 23 analysts expected the central bank to cut its benchmark interest rate by 25 basis points to 9.25%. Another five analysts forecast the central bank would hold rates, while one expected a 50-basis-point cut and another forecast a 75-basis-point cut.

In December, the central bank surprised the market when it cut the benchmark rate by 25 basis points, which was less than expected.

The monetary authority began its rate-cutting cycle in late 2023 and has lowered the rate by 350 basis points so far.

The central bank's technical team also revised its growth outlook for 2024 to 1.8%, down from 1.9% previously, and cut its 2025 growth outlook to 2.6%, from 2.9% previously.

There also remains uncertainty on the fiscal front, the statement added, and the exchange rate is "volatile."

Colombia's central bank met just days after the Fed held interest rates steady earlier this week. A Fed rate cut will likely not be seen until June, according to analysts and traders.

"External financial conditions look to become more restrictive in light of the new U.S. government's policies on trade, energy policy and migration, which may have inflationary effects. Long-term interest rates in global markets have shown persistent increases, the expected pace of Fed rate cuts has slowed, and the dollar has strengthened," the statement said.

Inflation's convergence toward the 3% target faces challenges, the board said in its statement, citing a higher annual increase in the producer price index, an increase in the minimum wage which - exceeds inflation by nearly 6% - and a recent rebound in all measures of inflation expectations.

Latin America's fourth-largest economy is also dealing with a budget headache, forcing the administration of President Gustavo Petro to slash spending by some 12 trillion pesos ($2.88 billion).

Petro's finance minister said on Thursday that another bill to bump up tax revenues could be coming soon.

Two of Petro's picks for the central bank board, Laura Moisa and Cesar Giraldo, are set to take their posts in February.

(Reporting by Nelson Bocanegra, Carlos Vargas and Julia Symmes Cobb; Writing by Kylie Madry and Oliver Griffin; Editing by Marguerita Choy and Aurora Ellis)