June 9, 2011 / 11:28 PM / 8 years ago

UPDATE 1-Peru central bank keeps rate as inflation cools

* Central bank pauses tightening cycle after 5 hikes

* May inflation slowed for first time since October (Adds central bank comment, background)

LIMA, June 9 (Reuters) - Peru’s central bank on Thursday held its benchmark interest rate PECBIR=ECI steady at 4.25 percent, pausing a five-month-long tightening cycle as inflation expectations cool and only days after leftist Ollanta Humala was elected president.

Five economists surveyed by Reuters had expected the decision while eight expected a 25-basis-point hike.

“This measure takes into account the moderation in consumer price increases and some indicators of production,” the central bank’s report said.

Peru’s consumer price index fell 0.02 percent in May, its first drop since October, as international commodities prices eased. The central bank had raised borrowing costs for five straight months in response to rising food prices.

Food accounts for the bulk of consumer spending in Peru, one of the world’s fastest growing economies. Growth is expected to have slowed in the second quarter, however, as uncertainty ahead of the election made the key construction sector grind to a virtual halt and reduced demand for loans.

Left-wing former army officer Ollanta Humala won Sunday’s vote by about three percentage points over his right-wing rival Keiko Fujimori after a bruising campaign. He has pledged economic prudence since winning but investors are awaiting cabinet appointments for a clear signal on policy.

Central Bank President Julio Velarde said during the Reuters investment summit in April that sharp hikes during unpredictable times are “like putting on the brakes on an icy road,” and that maintaining economic stability was crucial.

The central bank’s report said future adjustment to the interest rate depends on “new information on inflation and its determinants.” (Reporting by Patricia Velez and Caroline Stauffer; Editing by James Dalgleish, Gary Hill)

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