UPDATE 3-Colombia cenbank surprises with 50 bps rate cut

* Market had expected the bank to hold rate at 3.5 pct

* Rate cut prompted by low inflation expectations

* Consumer prices seen rising about 3 percent this year

(Adds analyst quote)

By Javier Mozzo

BOGOTA, April 30 (BestGrowthStock) – Colombia’s central bank
surprised financial markets on Friday by cutting its key
interest rate by 50 basis points to 3.0 percent at its monthly
rate-setting meeting, citing low inflation expectations.

Analysts had expected the bank to leave the rate unchanged
at 3.5 percent, as it had for the previous four months.

“The decision was made due to the reduction in 2010 and
2011 inflation projections,” central bank chief Jose Dario
Uribe told reporters. “It is not because we are looking at a
weaker economy. To the contrary, we are seeing an economy that
is stronger.”

Brazil’s central bank, in contrast, raised interest rates
more than expected on Wednesday, taking an aggressive stance
against rising inflation, which has stoked fears Latin
America’s largest economy could be overheating.

Colombia’s central bank sees inflation around 3 percent
this year, bang in the middle of its 2 percent to 4 percent
target range. A central bank poll of analysts this month
predicted 3.3 percent inflation in 2011.

Earlier this year analysts feared weather disturbances
associated with the El Nino phenomenon would jack up Colombian
food prices. But the El Nino has been milder than expected.

Wall Street was not expecting Brazil’s rate rise to be
followed by a cut in Colombia.

“I think that it surprised everybody in the sense that in
previous central bank communications they did not signal or
indicate that they were considering rate cuts,” Alberto Ramos,
senior economist with Goldman Sachs.

“That does not mean the decision was wrong. I think they
can perfectly well justify delivering more monetary stimulus
for the economy,” Ramos said.

Uribe raised the bank’s view of 2010 economic growth to 3
percent from a previous outlook of 2.5 percent. Colombian gross
domestic product eked out growth 0.4 percent in 2009 as the
country was hit by fallout from the global financial crisis.

“I think the rationale (for the rate cut) is that
expectations about economic growth are well below potential for
this year. The potential is thought to be about 4.5 percent but
they are expecting around 3 percent,” said Bertrand Delgado, a
senior economist at RGE in New York.

“The other reason is inflation has been surprising
positively, meaning it has been low and expectations have been
improving for the next 12 months,” Delgado said.

The world slowdown had caused private investment to
collapse in the last quarter of 2008. Colombia’s central bank
responded by chopping its key overnight rate by 6.5 percentage
points over a 12-month period starting in December 2008.

On Friday, Uribe also said the central bank is indefinitely
suspending sales of local TES bonds that it has purchased in
the secondary market.

Investment Advice

(Additional reporting by Daniel Bases and Walter
Brandimarte in New York)

(Writing by Hugh Bronstein)

UPDATE 3-Colombia cenbank surprises with 50 bps rate cut