July 11, 2014 / 12:35 AM / in 3 years

UPDATE 1-Peru's central bank surprises with 0.25 pct rate cut

(Adds quote from statement, context and details)

LIMA, July 10 (Reuters) - Peru’s central bank surprised the market by lowering the benchmark interest rate a quarter percent to 3.75 percent on Thursday, citing sluggish growth and stressing that more cuts will not necessarily follow.

All but three of 14 economists polled by Reuters said they thought the bank would not lower the rate but leave it unchanged at 4.00 percent as economic growth is expected to pick up in the second quarter.

The 0.25 percent rate cut is the bank’s second in eight months and follows an unusually weak economic expansion in April that marked a new low in a yearlong slowdown.

Growth figures for May will be released on Tuesday.

“Gross domestic product growth continues registering rates below its potential...mainly because of less dynamism in investment and exports,” the bank said in a statement. “This decision does not imply, given current information, the start of a series of reductions.”

The central bank sees Peru’s potential growth rate, the pace at which GDP can rise without fanning inflation, at 6 percent.

The economy expanded by 4 percent in the first four months of 2014 compared with the same period in 2013.

Peru, a top global producer of copper, gold and silver, enjoyed annual growth rates that topped 6 percent during most of the commodities boom of the past decade.

But weaker mineral prices, softer demand from China and unexpected dips in output from its biggest mines this year have sapped growth.

The central bank said that the economic lull should be temporary and reiterated that it sees inflation cooling to its goal of 2 percent in 2015.

The annual inflation rate eased slightly to 3.45 percent in June, remaining above the central bank’s 1 percent to 3 percent target range for the sixth month in a row.

The central bank’s lowering of the key rate in November of last year was its first in more than four years and also came as a surprise to economists.

Last year the economy grew by 5.8 percent, one of the fastest paces in the region but weaker than 2012’s 6.3 percent expansion.

The central bank said in April that it expects a 5.5 percent expansion in 2014. It is scheduled to announce an updated growth forecast in a quarterly report next week.

Reporting by Lima Newsroom; Editing by Lisa Shumaker

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