February 8, 2013 / 7:00 PM / 5 years ago

UPDATE 1-Peru cenbank sees conditions for rate cut in coming months

LIMA, Feb 8 (Reuters) - An official at Peru’s central bank said on Friday that if annual inflation cools to 2 percent as expected in coming months “the conditions would be created” for lowering the interest rate, which the bank has held steady for 21 straight months.

“If that happens, the conditions would be created to reduce the benchmark interest rate,” said Adrian Armas, the central bank’s manager of economic studies, referring to a drop in the inflation rate.

The possibility of lowering the interest rate comes as the central bank struggles to soften the impact of heavy capital inflows as the local sol currency trades around a 16-year high. A lower interest rate could make the sol less attractive.

The monetary authority also said it would again raise the ceiling on foreign investments for the country’s private pension funds, which manage some $30 billion in assets, from 32 percent to 34 percent - in a bid to encourage dollar outflows.

Inflation for the 12 months through January was 2.87 percent, within the 1-3 percent target range.

While the central bank has not changed the 4.25 percent benchmark interest rate in more than a year and a half, it has intervened heavily in the local spot currency market and tightened reserve requirements on banks six times since May.

In 2012 the central bank bought a record $13.9 billion as the sol gained 5.72 percent against the dollar, helped by stimulus measures abroad and Peru’s solid economic growth.

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