April 30, 2018 / 10:23 PM / a year ago

UPDATE 1-Peru central bank chief says no reason for pessimism on growth

(Adds quotes from Velarde, context on economy)

By Teresa Cespedes

LIMA, April 30 (Reuters) - The president of Peru’s central bank told Reuters on Monday that there was no reason to be “pessimistic” about sluggish economic growth or worried about the risk of deflation as prices retreat, signaling the country’s benchmark interest rate might remain unchanged next month.

Julio Velarde declined to comment on whether the bank would adjust the key rate at its May 10 meeting, but noted that most analysts in a central bank poll expect it to be held at the current 2.75 percent for the rest of 2018.

The central bank has gradually lowered the benchmark rate from 4.25 percent over the past year as growth slowed sharply amid severe flooding and far-reaching corruption scandals. A political crisis that resulted in the resignation of former president Pedro Pablo Kuczynski last month also dampened investment in one of Latin America’s most stable economies.

The new finance minister cut the government’s view of this year’s growth rate to 3.6 percent from 4 percent previously.

But Velarde said the central bank still expects a 4 percent economic expansion, up from 2.5 percent last year.

“There’s no reason to be so pessimistic,” Velarde said in an interview, citing increases in sales taxes, imports, and consumption of electricity and cement.

“We’re seeing very strong signs of recovery in consumption, even without the government doing anything,” Velarde said.

Velarde said higher prices for the minerals that Peru exports were drawing fresh investment to the Andean country - the world’s No. 2 copper producer - while the bank’s “expansive” monetary stance has encouraged lending.

But the consumer price index likely fell “slightly” this month, Velarde said. The monthly decline does not, however, alter the bank’s forecast for annual inflation to pick up from the current 0.36 percent to end the year at 2 percent, he added.

“We see it as a reversion of supply factors that should not influence monetary policy very much,” Velarde said. “We don’t see a problem of deflation.”

The annual inflation rate should rise to between 0.5 percent and 0.6 percent this month, he added.

Velarde also shrugged off any concerns about recent volatility in the local foreign exchange market.

“The sol is a currency with extremely solid fundamentals. Even when it moves up or down, it moves much less than in other countries.” (Reporting by Teresa Cespedes, writing by Mitra Taj, editing by G Crosse)

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