By Terry Wade
LIMA (Reuters) - Peru may further tighten monetary policy if inflation speeds up, Central Bank President Julio Velarde said on Friday, adding that the Andean economy could overheat despite a U.S. slowdown.
Inflation spiked 0.91 percent in February, a four-year high that pushed inflation for the 12 months through February to 4.8 percent. Economists are waiting to see if inflation will ease in March, or get worse.
"If inflationary pressures start to accelerate, we will take measures, and among those could be the interest rate or bank deposit requirements," said Velarde, who spoke in Lima at the Reuters Latin America Investment Summit. "We aren't ruling anything out."
To curb inflation, the central bank raised deposit requirements for banks in January and March, and in previous months raised its benchmark rate, now at 5.25 percent.
The finance ministry has also helped out by slashing tariffs on food imports, lowering fuel taxes, and cutting spending to put a damper on inflation.
Velarde has lately leaned in favor of raising deposit requirements, rather than interest rates. Higher rates could cause currency appreciation, which in turn would create risks for borrowers and lenders if the Peruvian sol later depreciates. About half of all loans in Peru are in dollars.
"When we intervene to slow currency volatility, it's in large part because we are worried about what could happen with the financial system," he said. "If the U.S. economy doesn't just slow down but enters a recession that drags down commodities prices, we worry our currency could depreciate."
GROWTH, OVERHEATING Continued...
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