May 9, 2014 / 12:01 AM / in 4 years

UPDATE 1-Peru's central bank holds benchmark rate at 4 percent

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LIMA, May 8 (Reuters) - Peru’s central bank kept its benchmark interest rate unchanged at 4 percent for the sixth month in a row on Thursday, citing expectations of dynamic economic growth and cooling inflation.

Central Bank President Julio Velarde said in an interview on Monday that he plans to hold the base rate as is in the near future unless demand stokes inflation or the economy slows abruptly.

All 14 foreign and local economists polled by Reuters this week forecast the bank would again leave the rate unchanged.

The central bank reiterated on Thursday, as it has in previous months, that economic growth has been weaker than its potential but that it will likely pick up soon.

“Indicators of productive activity and expectation polls point to dynamic economic activity, although at a slower rate than expected,” the central bank said in a statement.

Last month the central bank cut its growth forecast for 2014 to 5.5 percent from 6 percent. The government has estimated a 5.7 percent expansion.

Peru’s economy grew 5.56 percent in the 12 months through February, according to the most recent data available.

The annual inflation rate rose to 3.52 percent last month - above the upper limit of the central bank’s 1 percent to 3 percent target range for the fourth month in a row.

The central bank attributed that increase mainly to seasonal supply factors and said inflation will ease into its target range later this year - reaching its 2 percent goal in 2015.

In November, the central bank lowered the key interest rate by 0.25 percent to prod economic growth.

The surprise move was the bank’s first rate cut in more than four years, but since then it has opted to loosen reserve requirements for commercial banks to boost liquidity.

Peru’s economy slowed to expand by 5.6 percent last year as prices for its key mineral exports tumbled. In the previous decade the Andean country’s growth rate tended to top 6 percent.

The government initially said the economy grew 5 percent last year, but it revised that figure upward after adopting a new method for calculating gross domestic product.

Peru is one of the world’s top exporters of copper, gold and silver. Its potential growth rate, the pace at which the economy can expand without heating up inflation, is widely seen as between 6.0 percent and 6.5 percent.

Reporting By Lima Newsroom; Editing by Eric Walsh and Steve Orlofsky

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