June 7, 2017 / 8:28 PM / in a year

Peru central bank says fiscal stimulus needed to spur credit demand

LIMA, June 7 (Reuters) - Fiscal stimulus from Peru’s government would do more to spur a much-needed boost in credit demand than would a cut in interest rates, Julio Velarde, head of the country’s central bank said.

On the eve of a monetary policy meeting on Thursday, Velarde said he is considering several variables as policymakers look to reverse a deceleration of investment and economic growth.

“It’s important to understand that the problem at this point is not the rate. It’s that credit demand has to be reactivated,” Velarde told reporters late Tuesday.

“To reactivate it we need fiscal stimulus. It’s almost indispensable,” he added.

The central bank cut its benchmark interest rate to 4 percent on May 11, down from 4.25 percent previously, in the first rate cut since January 2015.

Peru’s economy grew by 2.1 percent in the first quarter versus the same 2016 period, its lowest rate in two years due to severe flooding in parts of the country and reduced construction activity, the government reported last month.

Reporting by Teresa Cespedes; writing by Hugh Bronstein; editing by Diane Craft

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