Peru seen holding rates as economy recovers

Lima: Peru's central bank doesn't need to raise its benchmark lending rate as the economy is recovering without creating demand-led inflationary pressures, the bank's research director, Adrian Armas, said Friday.

Consumer prices are rising because heavy rains in southern Peru affected food supply, Armas said on a conference call with reporters from Lima. While annual inflation quickened to 0.44 per cent last month, from 0.25 per cent in Dec-ember, on higher food and fuel prices, it remains below the bank's target range of between 1 per cent and 3 per cent, Armas said.

Policymakers are focused on the outlook for inflation and are ready to make "preventive adjustments" to monetary policy to ensure inflation stays within its target range, Armas said. The bank, which Friday kept its rate at a record low 1.25 per cent for a sixth straight month, doesn't see inflationary pressures in the short term that would require it to withdraw its monetary stimulus, he said.

"Prices normally rise in the first few months of the year for seasonal reasons." Armas said. "There's no need to increase the reference rate."

Economic indicators

All the leading indicators signal South America's sixth-largest economy is recovering its dynamism, Armas said. Cement sales, electricity output and raw material imports rose in January to the highest level for at least 16 months, according to slides from a central bank presentation. Credit grew 8.9 per cent in January compared with the year-earlier period, the presentation showed.

The bank doesn't have a target date for raising its reference rate, Armas said.

"The bank has other mechanisms it can utilise to complement adjustments in the rate," Armas said. "Their use will depend on the circumstances at the time it is deemed necessary to alter the position of the monetary programme."

The sol weakened 0.1 per cent to 2.8545 per dollar on Friday from 2.8525 Thursday.