Nov. 21 (Bloomberg) -- Colombia's central bank kept its benchmark rate unchanged today for a fourth month as concern about inflation outweighs pressure from some board members to reduce borrowing costs amid a global credit crunch.

Policy makers held the interbank rate at a seven-year high of 10 percent, meeting expectations of 27 of 31 economists surveyed by Bloomberg. Four analysts expected the Bogota-based bank's seven-member board, led by bank chief Jose Dario Uribe, to lower the overnight rate to 9.75 percent as the economy shows signs of slowing.

The bank weighed concern about the fastest inflation since 2001 with evidence that a worldwide financial slump is damping Colombia's economy. An interest rate cut could stoke expectations that prices will continue to rise, said Carolina Ramirez, chief analyst at Banco Santander Central Hispano SA's unit in Bogota.

``With inflationary expectations remaining high and no pressure on liquidity, rates should remain steady,'' Ramirez said. She predicts that the overnight rate will be kept at 10 percent until the first quarter of next year.

Uribe has said 16 rate increases in 2 1/2 years will start paying off in 2009, slowing annual inflation from 7.9 percent in October to below 5 percent at the close of 2009. After today's announcement, the bank chief said annual inflation this would be over 7 percent before a ``considerable'' reduction next year.

`Prudence'

The next change in interest rates, whenever it comes, will be a reduction, he said at the bank's quarterly presentation in Bogota Nov. 10.

``A rate cut has to be made with prudence'' so as not to spark inflation again, Uribe said.

Uribe likely faced at least two board members pushing for a cut of as much as half a percentage point as Colombia's economy slows faster than the government previously forecast. The global credit crisis and costly bank lending has prompted consumers to pull back on purchases of luxury items, cars and new homes, cutting gains in industrial output and retail sales.

Colombian President Alvaro Uribe has said repeatedly that the bank is putting the economy and jobs at risk by leaving interest rates at the highest level since August 2001.

Finance Minister Oscar Ivan Zuluaga said in an interview with Bloomberg Television this week that the central bank ought to lower interest rates as losses tied to the collapse of local pyramid schemes, along with the global financial crisis, hurt economic growth.

`Major Impact'

Speaking to reporters in Bogota today, Zuluaga said Colombia's economy is decelerating ``strongly.''

As many as 500,000 Colombians face the loss of their funds invested in Ponzi schemes that promised returns of as much as 200 percent in about month, Zuluaga said.

As much as 2 trillion pesos ($850 million) may have been entrusted to the fraudulent financial companies, according to unofficial estimates, he said.

Still, most policy makers have said the bank needs to anchor inflation expectations as there is a delay between the time monetary policy is changed and its impact on inflation.

The board has said declining international prices for oil and food may have a ``major impact'' on inflation in the coming months and it is unclear how the recent weakening of the peso will affect consumer prices.

The peso has declined 19 percent against the dollar since June 30 and today fell for a fourth day, losing 0.7 percent to trade at 2362.5 per dollar from 2347.0 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.

Inflation Targets

The central bank has said it won't meet its 2008 inflation target of 3.5 percent to 4.5 percent. Economists forecast inflation will end 2008 at 7.5 percent, according to the median forecast of central bank survey released earlier this month.

After announcing the board's decision today, Uribe said central bank had set an inflation target of 4.5 percent to 5.5 percent for next year.

Surging consumer demand in Colombia since President Uribe took office in 2002, pledging to make the nation safe from drug- funded violence, helped drive the $172 billion economy last year to its fastest expansion in almost three decades.

Bank chief Uribe last week cut the board's growth forecast for 2008 to 3.5 percent from as much as 5 percent in June, figures that compare to the economy's actual expansion of 8 percent last year.

To contact the reporters on this story: Andrea Jaramillo in Bogota at Helen Murphy in Bogota at hmurphy1@bloomberg.net

Last Updated: November 21, 2008 15:39 EST