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Colombian central bank hikes benchmark rate amid inflation concerns

Colombia'scentral bank, Banco de la República,on April 29 raised its benchmark interest rate by 50 basis points to 7.0% as partof its ongoing effort to curb inflation.

The moverepresents the eighth consecutive monthly increase after the central bank the rate by 25 basis pointsin March. According to Bloomberg News, the rate hike was higherthan most analysts had expected.

The bankagain cited the increase in food prices and depreciation of the local currency asbeing behind the steep rise in inflation. Annual inflation reached 7.98% in March,up from 7.59% the previous month, while the outlook for inflation remains high.

"Althoughthese are temporary shocks, the magnitude of the devaluation of the peso and thestrength of the El Niño phenomenon have raised the risk of a slower convergenceof inflation to the target range," the bank said.

The priceof oil, which is a key export for Colombia, has risen above the bank's expectationsfor 2016, which has boosted the peso and provided some relief from weaker externalconditions. However, world economic activity data suggests that the average growthof Colombia's trading partners in 2016 will be lower than in the previous year,the bank noted.

Separately,the central bank slightly lowered its GDP growth projection for 2016 to around 2.5%,from its 2.7% projection in March, reflecting weaker consumer confidence.