January 7, 2011 / 12:03 AM / 8 years ago

UPDATE 3-Peru central bank surprisingly raises base rate

* Cites higher global food, energy prices

* Economists had forecast no change (Adds worries about more capital inflows, paragraph 3)

LIMA, Jan 6 (Reuters) - In a surprise move, Peru’s central bank raised its benchmark interest rate PECPI=ECI to 3.25 percent from 3 percent on Thursday in a bid to avert inflation in one of the world’s fastest-growing economies.

Global increases in prices for food, especially grains, have started to worry economists who watched much of Latin America get hit with external prices shocks in 2008. Brazil appears poised to raise its benchmark rate again later this month. [ID:nN06281566] and [ID:nNO679278]

But rate hikes in emerging markets could lure additional inflows of capital and cause local currencies to appreciate even more as yield-hungry investors shy away from ultra-low yields in the United States, some economists say.

The move in Peru came after three straight months of holding the rate steady. Eight of 10 economists surveyed by Reuters had forecast rates would be left unchanged, though two said an increase was likely.

“The increase in the rate is of a preventive nature in light of dynamic domestic demand, and high global prices for food and energy,” the central bank said in a statement.

Peru’s economy is expected to have grown about 9 percent in 2010, one of the fastest paces in the world, and some sectors of the economy are growing at double-digit clips.

“This measure aims to prevent inflation expectations from being influenced by these supply factors. Future adjustments to the interest rate will depend on new information about inflation and its determinants,” the central bank added.

Despite the rate increase, inflation last year was 2.08 percent and this year is widely expected to fall within the central bank’s target range of 1 percent to 3 percent.

“While we were surprised by the timing of the decision, it is a good thing the (Peruvian central bank) jumps the gun before the election heats up,” said Pedro Tuesta, senior analyst with market research company 4Cast in Washington, D.C.

“It correctly identifies that the current demand dynamism will increase the impact of a potential rise in food prices.”

Peru will hold a presidential election on April 10.

Hugo Perea, head of economics at Banco Continental BBVA, said the rate hike means the central bank’s tightening cycle has resumed after it paused for several months.

The central bank had raised its base rate five times in 2010 from an all-time low of 1.25 percent before it paused in October.

“The decision is in line with our expectations. It is a preventive measure that comes in a time when inflationary pressures are not present but there is a rapid growth of internal demand,” Perea said. (Reporting by Teresa Cespedes and Ursula Scollo; Editing by Gary Hill)

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