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UPDATE 1-Peru central bank head sees tamer inflation ahead
March 9, 2016 / 10:34 PM / 2 years ago

UPDATE 1-Peru central bank head sees tamer inflation ahead

(Adds quotes, new information)

March 9 (Reuters) - The head of Peru’s central bank on Wednesday said he expects inflation to ease up in the second half of this year and through 2017, but he is prepared to take the necessary actions to ensure inflation expectations remain anchored.

Speaking in New York ahead of a scheduled rate decision, Julio Velarde said future rate hikes remain dependent on incoming economic data, but he does not believe the bank needs to remain as aggressive on rates as it has been.

“I cannot tell you what we are going to do tomorrow, but in principle our concern is (to) anchor inflation expectations,” Velarde said. “That is our program and to maintain credibility that the central bank will do whatever is in its hands to anchor inflation in the future.”

The bank has raised rates by a quarter percentage point at each of its last three meetings. Last month it raised its policy rate to 4.25 percent and is expected to lift it another quarter point at Friday’s meeting to 4.5 percent, according to a Reuters poll.

Velarde said he expects inflation, which was running at 4.47 percent on an annualized basis in February, will ease to 3.1 percent by the end of 2016 and 2.5 percent by the end of 2017.

Peru’s central bank said in January that it could continue to adjust the rate as needed and that it expects economic growth to approach its potential rate this year.

Increased rain as a result of the El Nino weather cycle has driven up food prices this year, putting upward pressure on inflation in the South American nation.

Velarde says he expects changes in the country’s weather patterns to help bring about the reductions in inflation.

“We expect most of that impact from the rain to be this half of the year and the second half of the year some of the crisis of the food that has been affected to be corrected,” Velarde said.

Peru’s finance minister Alonso Segura added that the rain so far this year has not been abnormal for the country and that such cycles are largely priced in to the country’s expectations. (Writing by Dan Burns; Reporting by Dion Rabouin; Editing by Andrew Hay)

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