UPDATE 1-Peru raises interest rates as inflation rises across Latin America

(Adds context on inflation)

LIMA, Aug 12 (Reuters) - Peru’s central bank on Thursday raised its benchmark interest rate to 0.5% from 0.25%, its first hike since the pandemic forced a steep drop in rates, as the Andean nation faces rising inflation like many of its regional peers.

The central bank also said in a statement that inflation expectations in July rose to 3% for the next 12 months, from a previous estimate of 2.6%.

Peru joins Brazil, Chile and Mexico which have also recently raised rates to curb inflation. Mexico on Thursday hiked interest rates to 4.5%.

Still, Peru’s central bank said in a statement that interest rates remain near historic lows and it is still committed to an expansive monetary policy to combat the pandemic’s effects on the economy.

Peru’s inflation over the last year totaled 3.8%, lower than in larger Latin American economies and the U.S. but higher than what the country is used to.

Peru’s central bank said it expects inflation to normalize itself to within its target band of 1%-3% within the next 12 months. (Reporting by Marcelo Rochabrun and Marco Aquino Editing by Chris Reese)