May 13, 2016 / 7:17 PM / 2 years ago

CORRECTED-UPDATE 1-Peru central bank says monetary policy still expansive

(Corrects last paragraph to remove reference to March as Armas did not give forecast for March)

LIMA, May 13 (Reuters) - Peru’s central bank said on Friday that monetary policy was still expansive even though retreating inflation expectations have pushed up the real interest rate during its three-month pause on tightening.

The real interest rate rose to a nearly two-year high of 1 percent this month from 0.8 percent in February, still far from the 2 percent rate that the bank considers neutral, said Adrian Armas, the chief economist of the central bank.

“The real interest rate has been rising because inflation expectation are falling ... it is still an expansive position on monetary policy,” Armas said on a conference call with reporters.

Peru’s central bank was the first of its regional peers to start hiking interest rates last year to rein in inflation even as economic growth was sluggish. It held the benchmark interest rate steady at 4.25 percent for a third straight month on Thursday after consumer prices were flat in April and market forecasts for future inflation eased.

Armas added that year-on-year economic growth was likely 4.5 percent in the first quarter and this month’s inflation rate will likely be “well under” the 0.53 percent pace logged in May 2015. (Reporting By Mitra Taj; Editing by Meredith Mazzilli and Sandra Maler)

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