July 14, 2016 / 11:37 PM / in 2 years

UPDATE 1-Peru central bank leaves key rate unchanged as inflation eases

(Adds central bank’s comments, details throughout)

LIMA, July 14 (Reuters) - Peru’s central bank held the benchmark interest rate steady at 4.25 percent for the fifth straight month as expected on Thursday after inflation continued to cool toward its target ceiling.

All 13 economists polled by Reuters had forecast the central bank would keep the key rate unchanged.

The central bank said that in making its decision it took into consideration that inflation expectations continue to gradually ease, foreign exchange and food product and public service price increases has been reversing, and domestic economic activity is growing at close to its potential.

Earlier on Thursday the head of the central bank described current monetary policy as “nearly neutral, slightly expansive.”

The annual inflation rate dropped to 3.34 percent in June from 3.54 percent in May, closer to the upper limit of the central bank’s target range of 1 to 3 percent.

In its post-meeting statement, the bank said it is vigilant of inflation expectations in considering possible future adjustments to the monetary policy rate. “Inflation is expected to be within the target range before year end,” said the bank.

The sol’s 14.6 percent depreciation last year helped push inflation to a four-year high of 4.4 percent in January. But the sol has gained nearly 4 percent against the dollar so far in 2016, even as the central bank has stepped up its interventions in the local spot market.

Peru’s mining-dependent economy has been recovering since late last year on the back of surging copper output from new mines, but domestic demand has remained relatively weak.

The central bank has forecast an uptick in growth in May and June and expects a 4 percent economic expansion this year. (Reporting by Teresa Cespedes; Writing by Mitra Taj & Anthony Esposito; Editing by Peter Cooney and Diane Craft)

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