Easing inflation offers Peru more monetary policy room-central bank
By Sujata Rao and Chris Vellacott
LONDON, Sept 3 (Reuters) - Peru's economic growth pace may slow to 4 percent in 2014, less than previously expected, but easing inflation is offering room to ease monetary policy, central bank governor Julio Velarde said in an interview.
Speaking to Reuters and Reuters Television on the sidelines of an investment conference in London on Thursday, Velarde said: "What we are seeing gives us more room for expansionary monetary policies ... if inflation is negative it gives us more room."
Velarde was referring to recent data that showed inflation had unexpectedly shrunk by 0.09 percent in August, bringing the annual rate back into the central bank's 1-3 percent target band for the first time this year.
Velarde predicted inflation would come in at 2.8 percent this year and slow further next year.
"We have some space because our projection for inflation is that it will continue being lower month after month. We expect it to finish (at) 2 percent next year," he added.
The central bank surprised markets last month by not cutting interest rates from 3.75 percent.
Peru's economic growth has slowed to five-year lows, hit by a fall in metals prices driven by lower demand from China. The economy grew 3.3 percent in the first half of 2014 versus a year earlier, and GDP grew 0.3 percent in June.
Velarde said he saw the June number as marking the low point but he forecast 2014 full-year growth to be 4 percent, lower than the official central bank forecast from July of 4.4 percent. He stuck to a prediction of 6 percent for next year. Continuación...