Colombia central bank seen slowing rate cuts in first meeting of the year

By Nelson Bocanegra

BOGOTA, Jan 31 (Reuters) - Board members of Colombia's central bank are expected to opt for a smaller rate cut when they meet on Friday on uncertainty around inflation, the nation's fiscal situation and policy moves by the U.S. Federal Reserve.

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 holding rates, while one expected a 50-basis-point cut and another forecast a 75-basis-point cut.

The split opinions came after the central bank in December surprised when it cut the benchmark rate less than expected, by 25 basis points, from 9.5%, marking a slowdown from six previous 50-basis-point cuts.

If the leading opinion holds and the central bank cuts rates by 25 basis points on Friday, its first meeting of the new year, that would bring the benchmark down to its lowest level since August 2022. The monetary authority kicked off its rate-cutting cycle in late 2023, lowering the rate by 350 basis points so far.

Colombia's central bank meets 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.

"We expect a more moderate size (cut) from the central bank board on global uncertainty, regional volatility and local fiscal talks, and their effect on inflation," said David Cubides, chief economist at brokerage Alianza.

Some analysts fear that a recent minimum wage hike, above inflation, could delay price increases from coming back to the central bank's target of 3%.

The government upped the minimum wage for 2025 by 9.54%, far above last year's inflation rate of 5.2%.

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; Writing by Kylie Madry; Editing by Marguerita Choy)