September 27, 2019 / 11:01 PM / 2 months ago

UPDATE 1-Peru's central bank chief signals no rate cut for now

(Recasts with comments from central bank chief)

By Maria Cervantes

LIMA, Sept 27 (Reuters) - The head of Peru’s central bank signaled on Friday that a new rate cut was not in his sights for next month despite an escalating political crisis threatening to slow economic growth.

Velarde said the benchmark interest rate was already “very expansive” at 2.5% and that lowering it further would not necessarily stimulate tepid demand for credit.

“If there’s no demand for credit, the effect is pretty poor,” Velarde told journalists, pointing to 0% rates in the United States and Europe that failed to stimulate borrowing.

A rate cut might also push Peruvians to keep their savings in dollars instead of the local sol currency, Velarde said. The bank for years has sought to de-dollarize the economy.

Velarde spoke to journalists minutes before President Martin Vizcarra called for a vote that could allow him to close Congress, after lawmakers shelved his proposal for snap elections. On Thursday, the sol currency dropped 1% as the market braced for a showdown.

“If we really did see that it has a very large economic impact, the (bank) could do it,” Velarde said, referring to a rate cut. “But it’s an evaluation we have to do constantly.”

The bank slashed its view of growth for this year and next to 2.7% and 3.8%, respectively, from 3.4% and 4.0% in July.

The central bank’s board cut the interest rate to 2.5% in August, stressing it did not necessarily mean the start of an easing cycle. It held the rate this month and will meet again to review its monetary policy Oct. 10. (Reporting By Maria Cervantes; Writing By Mitra Taj; Editing by Daniel Wallis)

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