Colombia should pause on interest rate cuts after S&P move: finance minister

Cardenas, who had said repeatedly there was no chance of a ratings' reduction, told local Caracol Radio the best plan would now be to pause and resume interest rate cuts next year.

The decision on Monday by S&P to lower the Andean nation's credit rating by a notch to BBB-, citing weakened policy flexibility, came just days before the central bank meets to discuss monetary policy amid weak economic growth while inflation remains slightly higher than desired.

"I believe that with this news it would probably be convenient to take a break, analyze the decision, evaluate the moment, and resume cuts from January next year," he said of Thursday's meeting.

Cardenas is one of seven policymakers and represents the government on the board.

He said on Monday Colombia has already taken steps to stabilize the economy, including last year's tax reform, monetary policy that cut inflation and currency adjustments.

Most analysts polled by Reuters project the bank will leave its lending rate stable at 4.75 percent, while the minority estimated a 25 point reduction.

The bank has cut borrowing costs by 275 basis points since December 2016, in a bid to bolster the sluggish economy.

Consumer prices rose 4.12 percent in the 12 months to November, well below a mid-2016 high of nearly 9 percent, but still above the bank's long-term 2 percent to 4 percent target range.

The government last month reduced its gross domestic product growth target for this year to 1.8 percent, amid low domestic consumption and following disappointing third-quarter figures.

S&P rated Colombia's outlook as stable, indicating it expects the country's political institutions and economic policies to continue to contribute to economic stability.

The finance ministry said the stable rating indicated the agency would not make additional revisions in the near future.

Cardenas had dismissed the idea of a ratings cut, telling Reuters in August "there's not even a shadow on the horizon".

S&P, Moody's and Fitch all rate Colombia investment grade but have raised concerns about its fiscal situation.

Despite the rating change, bond issues by the government and companies were not likely to suffer much because of available global liquidity, analysts said.

"Companies are always tied to the sovereign rating of their country," said Alianza brokerage analyst Camilo Thomas. "But with the general appetite for risk right now, those assets won't be punished in the same way they would've been in risk-averse previous years."

(Reporting by Helen Murphy and Nelson Bocanegra; Editing by Bernadette Baum and David Gregorio)