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LIMA, Dec 15 (Reuters) - Peru's central bank held the benchmark interest rate steady at 4.25 percent for the tenth month in a row as expected on Thursday, but warned that a drought was fanning inflation and noted a lack of investment in construction and manufacturing.
All 14 economists polled by Reuters had forecast the rate hold, which came a day after the Federal Reserve's decision to hike U.S. interest rates dampened demand for Peru's sol currency.
The annual inflation rate in Peru cooled to 3.35 percent in November, above the central bank's 1-to-3 percent target range for the third month in a row.
"The water deficit generated by adverse climatic factors has been affecting inflation transiently," the central bank said in a statement, leaving out its usual year-end forecast for inflation that it had previously put at about 3 percent.
Though surging copper output from new and expanded mines has been driving an economic recovery, domestic demand has slowed and year-on-year growth in October was the weakest in a year and a half.
The central bank said that weak investment has dragged on construction and manufacturing, key to job growth, but that business expectations were still optimistic. (Reporting by Mitra Taj; Editing by Chris Reese and James Dalgleish)