June 16, 2017 / 6:34 PM / a year ago

UPDATE 1-Peru central bank lowers 2017 economic outlook

(Adds deficit and trade balance forecasts, economic context)

LIMA, June 16 (Reuters) - Peru’s central bank reduced on Friday its forecast for 2017 economic growth to 2.8 percent from 3.5 percent seen in March, as the country sees falling investment with infrastructure projects frozen due in part to the Odebrecht corruption scandal.

The report came a day after the government said that Peru’s economy grew 0.17 percent in April compared with the same month a year earlier, the lowest monthly expansion since July 2009 amid declines in construction and manufacturing.

In its quarterly report, the bank also raised its 2018 growth outlook to 4.2 percent from 4.1 percent previously. It raised its fiscal deficit estimate for both years, to 3 percent of gross domestic product in 2017 and 3.5 percent in 2018.

The central bank also cut its 2017 inflation forecast to 2.2 percent on Friday, slightly below its previous estimate of 2.4 percent, and said 2018 inflation would be 2.8 percent. Central Bank President Julio Velarde said in a news conference that June inflation would likely be around zero or even negative.

In the report the bank estimated Peru’s 2017 current account deficit at 2.1 percent of gross domestic product versus a previous forecast of 2.6 percent. It said it expects the 2018 current account deficit at 2.0 percent of GDP, down from its previous estimate of 2.4 percent.

The bank said it sees this year’s trade surplus at $4.88 billion, up from $3.96 billion previously estimated.

In a press conference, central bank chief Julio Velarde said the monetary authority would lower bank reserve requirements in July to 42 percent, from 44 percent currently, and would continue lowering them thereafter.

He also did not rule out another interest rate cut to help boost the economy, but said it would need to be timed to have the greatest impact possible. The bank kept its interest rate on hold at 4 percent last week, after cutting rates in May for the first time in more than two years.

Peru’s opposition Popular Force party, which has a majority in Congress, meanwhile asked for Finance Minister Alfredo Thorne’s resignation on Friday due to questions of his handling of an airport contract.

Reporting by Teresa Cespedes; Writing by Caroline Stauffer and Hugh Bronstein; Editing by Chizu Nomiyama

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