LIMA, June 17 (Reuters) - Peru’s annual inflation rate will likely stay above the central bank’s 3.0 percent target ceiling until the end of the year thanks to the depreciation of the local currency, the central bank said Wednesday.
The sol currency’s more than 6.0 percent slide against the U.S. dollar in the past six months is pushing up prices, Central Bank President Julio Velarde said.
“Such a rapid rise in the exchange rate has repercussions for inflation,” Velarde told journalists on the sidelines of an event. “We’re going to be above 3.0 percent until nearly the end of the year.”
Inflation rose twice as rapidly than expected in May, in part because of a port strike and local fuel shortages. The annual rate stood at 3.37 percent, above the upper limit of the central bank’s 1.0 to 3.0 percent tolerance range for the third month in a row.
But Velarde said that quickening inflation in recent months has been largely driven by supply factors.
“If we detect elements of demand-driven inflation we’ll take measures,” Velarde said.
Economic activity picked up slightly in March and expanded at the fastest rate in more than a year in April on a mining surge.
But the growth rate for the past 12 months is still well under the 5.0 percent pace that the central bank considers Peru’s potential rate.
Velarde said that he expects the economic expansion in the second half of 2015 to be faster than in the first half.
The central bank and government have said an economic recovery from the worst slowdown in five years is now underway.
The central bank has held the benchmark interest rate steady at 3.25 percent for the past five months, despite weak growth.
Velarde added that he did not think that the weather pattern El Nino this year would have much of an impact on inflation.
Peru held its forecast for El Nino in coming months at “between moderate and strong” this week. (Reporting By Teresa Cespedes, Writing by Mitra Taj)