UPDATE 2-Peru central bank cuts 2013, 2014 growth forecasts again

Fri Dec 20, 2013 2:21pm EST

LIMA Dec 20 (Reuters) - Peru's central bank slashed its official forecast on Friday for economic growth this year to 5.1 percent from its September forecast of 5.5 percent.

In its quarterly report, the central bank also revised down its estimate for economic growth in 2014 to 6 percent from 6.2 percent.

The central bank has trimmed its growth forecast several times this year as the Andean country's key mineral exports have tumbled on weak prices and softer demand, and domestic demand has slowed.

The central bank cut its benchmark interest rate in November for the first time in four years to try to spur growth. It held the rate unchanged at 4 percent this month but said the economy is growing at a rate slower than its potential.

Central Bank President Julio Velarde said on Friday the bank is more inclined to loosen requirements for commercial bank reserves than to cut the benchmark rate again.

"Our bias is toward reserve requirements. If we saw demand slowing or too strong appreciation pressures on the sol currency we might also prefer the interest rate," Velarde told reporters.

"But the way we see it now - there will probably be a reduction in reserve requirements," Velarde said.

So far this year, Peru's economy has grown by 4.9 percent. Growth figures have not yet been released for November and December. Last year the economy grew by 6.3 percent, one of the fastest rates in the region.

Velarde said inflation in Peru at the end of 2013 will likely be 2.8 percent or 2.9 percent, at the upper limit of the central bank's 1-3 percent target range and largely in line with a previous estimate.

Next year inflation will likely cool to 2 percent with no significant demand pressures, he said.

Because of slipping mineral exports, the South American country is now on track to post its first trade deficit in more than 10 years.

But the central bank sees a smaller 2013 trade gap than it did in its report three months ago, $396 million instead of $666 million.

Next year Peru will probably post a smaller trade surplus than previously thought - $40 million instead of $310 million, the bank said.

In 2012, Peru registered a $4.5 billion trade surplus, which was half of the surplus in 2011.

The central bank also raised its view of this year's fiscal surplus to 0.6 percent of gross domestic product from the 0.4 percent it forecast in its last report.

"This year we are going to be the only country in the region with a fiscal surplus," Velarde said. "If our projections are off and the global situation gets worse, we will have the fiscal and monetary tools to defend ourselves."

In 2014, the Andean country will likely post a fiscal surplus equal to 0.1 percent of GDP, the bank said, maintaining its most recent estimate.

The bank held its forecast for this year's current account deficit at 4.9 percent of GDP, but it sees a wider current account gap next year than it had previously forecast: 4.6 percent of GDP instead of 4 percent.

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