Peru's central bank maintained its monetary policy rate at 4.25 percent for the 11th month in a row, saying the rate was consistent with its forecast that inflation would converge to its target range by the middle of this year.
The Central Reserve Bank of Peru (BCRP), which paused in its tightening campaign in March last year after four rate hikes, also said economic growth slowed in the final quarter of last year amid lower public spending but activity in coming quarters should be close to the economy's potential and expectations among businesses remain optimistic.
Peru's inflation rate eased to 3.23 percent in December from 3.35 percent in November, with the central bank last month in its inflation report raising its estimate for 2016 inflation to 3.3 percent from 3.0 percent due to higher food prices from drought.
For 2017 BCP forecast 2.3 percent, up from its previous forecast of 2.0 percent, marking the first year since 2013 that inflation would be within the central bank's target range of 1-3 percent.
In 2013 inflation averaged 2.9 percent but then rose to 3.2 percent in 2014 and 4.4 percent in 2015, partly due to depreciation of the peso from mid-2014 to February 2016.
Since then the peso has been more stable and was trading at 3.36 to the U.S. dollar today, slightly up from 3.4 at the start of 2016 but steady from 3.35 at the start of this year.
Peru's economy expanded around its potential rate of 4 percent in 2016 but a drop in public investment in the fourth quarter hit the construction sector. But the new president, who took office in July last year, has promised to boost infrastructure projects.
The central bank has estimated 4.0 percent growth for 2016 and in December lowered its 2017 forecast to 4.3 percent from 4.5 percent due to lower public spending. For 2018 the central bank expects growth of 4.2 percent.
In its statement, the central bank said 2017 growth expectations were 4.0 percent.
In the third quarter of last year Peru's Gross Domestic Product grew by an annual rate of 4.4 percent, up from 3.7 percent in the second quarter and the central bank has estimated fourth quarter growth of 3.2 percent, rising to 4.2 percent in the first quarter of this year.