September 11, 2015 / 12:21 AM / 4 years ago

UPDATE 3-Peru cenbank hikes interest rate for first time in 4 years

(Adds quotes from central bank, analyst)

LIMA, Sept 10 (Reuters) - Peru’s central bank unexpectedly hiked its benchmark interest rate for the first time in four years on Thursday to tame currency-driven inflation, and said there was scope for further increases.

The 25-basis-point hike, to 3.50 percent, was forecast by only three out of 14 analysts polled by Reuters this week.

The central bank said it could raise the rate again to bring inflation back into its 1-3 percent target range but stressed the increase did not mark the start of a tightening cycle.

One analyst said he anticipated a second hike before the end of the year.

Policy remained expansive, the central bank said, with the new level equivalent to a real interest rate of 0.5 percent.

“The board is closely watching inflation forecast and its determinants to consider, if necessary, additional adjustments to the benchmark interest rate,” the central bank said in a statement.

However, it added that inflation has been driven by the sol currency’s depreciation and food supply shocks, and said those “factors that shouldn’t generally translate to prices in the rest of the economy.”

Peru’s rate increase comes amid continued uncertainty over whether the U.S. Federal Reserve will raise interest rates at its policy meeting next week.

Expectations for tighter monetary policy in the United States have fueled the sol’s nearly 8 percent slide against the dollar this year, helping to push inflation to 4 percent in August - the first time it has been a full percentage point above the central bank’s 3 percent target ceiling since 2012.

The central bank has fought to soften the sol’s losses with heavy interventions in the local spot markets and tighter limits on currency derivative operations.

“We feel that given the global conditions we may see pressure later on as the U.S. starts hiking. That is why we forecast another hike in December,” said Pedro Tuesta, a 4Cast analyst.

The central bank sounded slightly more optimistic on the economy’s slow recovery from last year’s sharp slowdown. It had cut the interest rate three times in the past year to spur growth.

“It is estimated that the economy will likely grow at a rate similar to GDP’s potential rate in 2016,” the bank said.

The monetary authority said in February that it saw Peru’s potential growth rate at about 5 percent.

The economy expanded by about 3 percent in the second quarter from a year ago - faster than in previous quarters. (Reporting by Lima Newsroom; Editing by Lisa Shumaker, Ken Wills and Leslie Adler)

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