LIMA (Aug 13): Peru's central bank held its benchmark interest rate at 4.25% on Thursday, extending its pause for an 11th straight meeting, in line with market expectations and earlier comments by the body's monetary policy chief.

Carlos Montoro, the central bank's monetary policy head, said ahead of the policy decision on Thursday the entity saw no need to raise interest rates, viewing recent inflation pressure as temporary.

Twelve-month inflation expectations rose from 2.8% in June to 3.0% in July, reaching the upper limit of the central bank's target inflation range, the bank said in its decision.

Year-over-year inflation is projected to return to the target range and settle around 2%, the bank said, while warning that this year's strong El Niño weather pattern and geopolitical tensions in the Middle East could have more persistent effects on inflation.

In the earlier comments, Montoro said inflation expectations for next year and 2028 remain anchored around the midpoint of the central bank's 1% to 3% target range, giving policymakers room to contain price pressures without tightening borrowing costs.

"Economic agents today expect inflation to be around the centre of the target range, at about 2% to 2.5%," Montoro said. "Inflation expectations remain anchored. This gives the central bank breathing room to control inflation without having to raise the interest rate."

Peru's benchmark rate remains below that of regional peers, Montoro said, adding the central bank's credibility and timely policy response had helped keep inflation under control.

Peru's monthly consumer prices rose 0.29% in July, after a 0.23% increase in June, data from national statistics agency INEI showed. Annual inflation accelerated to 4.07% in the 12 months through July from 4.01% in June, remaining above the central bank's target range.

Still, Montoro said the outlook is for inflation to ease back to the middle of the target band early next year.

Supporting that view, Moody's said on Thursday that it expects to raise its estimate for Peru's economic growth this year to 3.5% from a previous 3.0%, citing the country's macroeconomic strength despite the impact of the El Niño climate phenomenon.

Renzo Merino, vice-president of Moody's sovereign risk group, said the revised forecast would be published in the ratings agency's September report.

The improved growth outlook may offer some reassurance to policymakers seeking to balance still-elevated inflation with support for economic activity.

President Keiko Fujimori took office in late July, seeking to calm markets by retaining Julio Velarde as central bank chief and preserving a pillar of Peru's inflation-fighting credibility.

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