LIMA (Reuters) – Peru’s central bank could cut the benchmark interest rate one or two more times, depending on economic data, following two reductions so far this year, the head of the bank said on Wednesday without specifying a timeframe.
Julio Velarde said a new reduction to the key rate, which the bank lowered 25 basis points to 3.75 percent last week, will depend in part on how the slowing economy responds to the government’s stimulus measures in the wake of severe flooding and a graft scandal that has stalled public work projects.
“We’re going to see how things go and according to that we’ll see if there’s room for one or more (reductions), depending on the data,” Velarde told reporters on the sidelines of an event. “It should be accompanied by a fiscal impulse. Thankfully, the government is doing that.”
The government of Peruvian President Pedro Pablo Kuczynski said Tuesday that it expects its spending on post-flooding reconstruction to support 2.8 percent economic expansion this year, down from last year’s 3.9 percent.
Velarde said the central bank plans to continue to loosen reserve requirements for deposits in dollars to provide liquidity for local lending in dollars amid expectations for rising interest rates in the United States.
The consumer price index will likely rise by 0.15 to 0.2 percent in July, Velarde said.
Peru’s annualized inflation rate eased into the central bank’s 1 to 3 percent target range last month after the consumer price index fell for three straight months.
Reporting By Teresa Cespedes, Writing By Mitra Taj; Editing by Chizu Nomiyama and Diane Craft