Colombia central bank board cuts interest rate to 10.25%

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By Nelson Bocanegra and Carlos Vargas

BOGOTA, Sept 30 (Reuters) - Colombia's central bank cut the benchmark interest rate by 50 basis points to 10.25% on Monday, a more moderate cut than expected by some analysts, as the bank hailed lower-than-expected inflation amid international cuts to borrowing costs.

The decision was backed by four of the board's seven members, while the remaining three voted for a 75 basis point trim.

The reduction comes amid growing predictions that the U.S. Federal Reserve will cut its interest rates in November by some 50 basis points.

Analysts had said that local inflation figures - 6.12% in the 12 months to August - would leave enough space for the bank to increase the speed of rate cuts.

But a recent truck drivers' strike and the impact of the El Nino drought on utility and some food prices saw all analysts in a Reuters survey predict a divided decision by the board. Half of those polled expected a cut of 50 basis points and the other half a cut of 75 basis points.

Inflation in August was below expectations, the board said in its statement announcing the decision, partially because of lower food prices. Expectations for consumer price growth in 2025 were also down, it added, while GDP growth predictions for the year were up.

"Indicators of economic activity for the third quarter suggest that the economy will have continued deepening of its recovery process," the board said.

Finance Minister Ricardo Bonilla, who represents the government on the board, said he was disappointed the cut was not sharper.

He told Reuters this month that he was confident the board would be inclined toward a 75 basis point cut.

Despite expectations that the Fed will cut interest rates, risk premiums for Latin America have risen, the board added, and Colombia's were up more than any other.

"That is related, among other factors, to the reduction in oil prices and the challenging fiscal situation," the board said.

Economic committees in Congress last week rejected the government's

proposed budget

for 2025 amid fierce debate over its $126 billion value, but the government could push it through by decree.

The board unanimously voted to reappoint the head of the bank board, Leonardo Villar, for another four-year term, beginning in 2025, it said in a separate statement.

(Reporting by Nelson Bocanegra and Carlos Vargas; Writing by Julia Symmes Cobb; Editing by Andrea Ricci)

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