November 10, 2017 / 12:10 AM / a month ago

UPDATE 1-Peru cenbank cuts interest rate for fourth time this year

(Adds quote from central bank, context)

LIMA, Nov 9 (Reuters) - Peru’s central bank lowered its benchmark interest rate to 3.25 percent on Thursday following a sharp drop in inflation, its fourth 25-basis point cut this year to support sluggish economic growth.

The market had been divided about the rate decision, with nine out of 14 analysts polled by Reuters forecasting the hold and the rest expecting a cut.

Last month the inflation rate dropped to the central bank’s goal of 2.0 percent from 2.9 percent previously, giving it more room to lower borrowing costs.

Peru’s inflation and growth outlooks were upended early this year when severe flooding halted construction projects and prompted an initial spike in consumer prices followed by a decline that deepened in October.

Unlike last month, the bank did not attribute declining inflation to supply factors, but it said it expected the rate to keep falling but that it should remain in its 1 to 3 percent target range this year and next.

The bank also adopted a more optimistic tone on growth, which it said has been “recovering rapidly.” “However, it remains below its potential growth rate in a context of low inflation,” the bank said in a statement.

The bank’s chief said that year-on-year growth in September, which will be reported next week, was likely at least 3 percent.

Reporting By Mitra Taj; Editing by Chris Reese

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