September 21, 2018 / 9:57 PM / 7 months ago

UPDATE 1-Peru central bank signals interest rate hike unlikely until 2019

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By Teresa Cespedes

LIMA, Sept 21 (Reuters) - Peru’s central bank signaled on Friday that it would likely not raise the country’s benchmark interest rate until next year unless an unexpectedly strong economic recovery spurs inflation before then.

Asked when the bank might start hiking the benchmark interest rate, Central Bank President Julio Velarde told reporters that a hike in the next couple of months was unlikely.

“It depends on the data. I can say that I don’t see it in October ... probably not November,” Velarde said after presenting the bank’s quarterly report.

“Almost everyone is talking about the end of the first quarter or the second quarter” of 2019, Velarde said. “Fewer than 10 percent of market analysts think the recovery will be so fast that we could hike by December.”

That scenario will likely hold “unless there’s a strong economic recovery that affects prices,” Velarde said.

Peru’s central bank has kept the benchmark interest rate at 2.75 percent for the past seven months, with inflation on the lower end of its 1 percent to 3 percent target range and gross domestic product set to grow 4 percent this year.

Peru, the world’s No.2 copper producer, has been gradually recovering from a slowdown that left economic growth at just 2.5 percent last year.

The U.S.-China trade war has lowered prices for the country’s key copper exports and changed the bank’s outlook.

The central bank, in its quarterly report, trimmed its view for 2019 economic growth to 4 percent from an earlier 4.2 percent projection. It maintained its forecast for this year at 4 percent, even though Velarde said in July that he expected it to be raised.

The bank also slashed $4 billion from its 2019 trade surplus estimate and $2 billion from this year’s surplus estimate, due to trade tensions between the United States and China. Peru is now expected to post a $6.94 billion trade surplus this year and a $5.79 billion surplus in 2019.

Earlier this month, Chile’s central bank said the U.S.-China trade war and the risk of a sustained fall in copper prices added uncertainty to whether it would raise interest rates in the coming months. Chile is the world’s top copper producer.

Velarde said he expects inflation to quicken to 2.2 percent by the end of the year and reach its goal of 2 percent in 2019. The annualized inflation rate slipped to 1.07 percent in August.

Reporting by Teresa Cespedes, writing By Mitra Taj; editing by Bill Berkrot

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