(Adds quote from central bank official and context)
LIMA, March 9 (Reuters) - Peru’s central bank cut the benchmark interest rate this week because of uncertainty over economic growth and public investments, and would have room for a new reduction if inflation slowed unexpectedly, a bank official said on Friday.
The central bank now expects the annual inflation rate to fall to about 0.6 percent from 1.18 percent by the end of this month - under its 1 to 3 percent target range, the bank’s head of economic research, Jorge Estrella, said.
However, the sharp inflation slowdown expected this month is due mostly to consumer prices normalizing after supply shocks last year, Estrella said. The consumer price index is not expected to fall this month, he added.
“A downside surprise with inflation will give the bank more room to reduce the interest rate,” Estrella told journalists on a conference call.
The central bank cut the interest rate to 2.75 percent on Thursday, its fifth 25-basis point reduction since May.
Economic growth in Peru slowed to 2.5 percent last year as corruption probes hit construction activity and political turmoil heightened uncertainty and hobbled government spending.
Reporting By Teresa Cespedes, Writing By Mitra Taj Editing by Chizu Nomiyama and Susan Thomas