By Teresa Cespedes and Ursula Scollo
LIMA, March 24 Peru's central bank vowed on
Friday to do its part to help mitigate flooding and a massive
graft scandal that it expects will trigger the first economic
slowdown in three years.
The economy will likely grow 3.5 percent instead of 4.3
percent this year and 4.1 percent instead of 4.2 percent in
2018, the central bank said in its quarterly report, slashing
its December forecasts.
The need to rebuild parts of Peru that have been hit hard by
destructive rains and flooding caused by a surprise local El
Nino phenomenon will likely force the government to post a
bigger-than-expected fiscal deficit of 2.8 percent of gross
domestic product this year, the bank said.
Central Bank President Julio Velarde told a news conference
the benchmark interest rate might be lowered if domestic demand
does not improve, depending on inflation.
Despite the extreme weather that has blocked transit and
squeezed some food prices, the bank only slightly raised its
view for inflation this year, to 2.4 percent from 2.3 percent.
However, Velarde warned inflation in March was going to be
The bank has not cut the benchmark interest rate since
January 2015 after slumping prices for Peru's mineral exports
prompted a sharp economic slowdown.
Velarde said the bank will lower reserve requirements for
deposits in soles to 5 percent from 6 percent - a measure that
should inject some $154 million into the economy.
"This year we're going to be hit by El Nino and the
postponement of large projects," Velarde said during a
presentation of a quarterly inflation report. "Rest assured that
the central bank will do its part to try to mitigate the
Peru has enjoyed one of the most robust economies in Latin
American, but a surge in copper production that has driven
growth is expected to fade this year.
Much will hinge on domestic demand rebounding from nearly
flat growth last year, possibly with the help of extra stimulus
funds promised by President Pedro Pablo Kuczynski.
Some have forecast an even sharper slowdown as the El Nino
is forecast to stretch into April, battering agriculture,
fishing and manufacturing. Pedro Tuesta, an analyst for 4Cast,
said he now sees a 2.8 percent expansion this year.
(Reporting By Teresa Cespedes and Ursula Scollo, Writing By
Mitra Taj; Editing by Alistair Bell and Cynthia Osterman)