UPDATE 1-Peru central bank keeps rates steady for 21st month

Thu Feb 7, 2013 6:19pm EST

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LIMA Feb 7 (Reuters) - Peru's central bank held its benchmark interest rate steady on Thursday at 4.25 percent for the 21st straight month as inflation runs within its target range even as economic growth hurtles along at a 6 percent clip.

All 17 economists surveyed by Reuters had predicted the monetary authority would keep the rate unchanged.

Annual inflation for the 12 months through January was 2.87 percent, within the 1-3 percent target range of the central bank.

Seasonal price spikes for locally grown foods and external shocks had pushed inflation up to 3.74 percent in the 12 months through September, but consumer prices dropped in November and October and have ticked up only slightly since then.

The central bank has said it expects inflation to merge toward 2 percent this year, and it now seems more worried about the effect of the wobbly global economy on Peru's swift expansion than about rapidly rising prices.

"Current and leading indicators of productive activity show growth of the Peruvian economy has stabilized around its long-term sustainable rate, though indicators tied to foreign markets still show weak performance," the central bank said in a statement.

Peru's potential growth rate, the maximum rate the economy can expand without provoking excessive inflation, is normally seen around 6 percent or 6.5 percent.

The government has said Peru's economy probably expanded 6.3 percent in all of 2012. A similar pace is expected this year.

The central bank has described its current monetary stance as slightly tighter than neutral. It has raised bank reserve requirements six times since May to soften the impact of heavy capital inflows on the local currency and to steady a quick credit expansion.

The country is a top exporter of minerals, which drive some 60 percent of its international shipments. Exports have slumped in recent months, and domestic lending, consumption and construction are now fueling the country's economic expansion.

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