November 8, 2013 / 7:46 PM / 6 years ago

UPDATE 2-Peru's central bank sees gloomier economic growth

LIMA, Nov 8 (Reuters) - Peru’s central bank said on Friday it was lowering its 2013 economic growth forecast for the second time in less than 2 months to around 5.2 or 5.3 percent from 5.5 percent, in line with estimates by analysts and banks.

The move follows the bank’s unexpected decision on Thursday to cut the benchmark interest rate by 0.25 percent.

“What we’re seeing is that the rate of growth is going to be weaker than we had expected,” Peru Central Bank Research Director Adrian Armas told reporters on a conference call.

In March the central bank said the economy would likely expand by 6.3 percent. It lowered that estimate to 6.1 percent in June amid tumbling mineral exports and then to 5.5 percent on September 20.

Armas said estimates of 5.2 or 5.3 percent by analysts and financial agents polled by the central bank at the end of October were more realistic.

The government expects the economy to expand 5.7 percent in all of 2013, a goal now widely seen as improbable.

Peru, the world’s third top exporter of copper and silver and sixth biggest gold exporter, enjoys one of the region’s fastest growth rates.

Softer demand from China and weaker mineral prices have eaten into earnings.

Peru is poised to post a trade deficit this year for the first time in more than a decade.

Stronger domestic demand in recent years as the middle class broadened helped Peru’s mining-dependent economy offset dips in mineral exports.

Once-surging sectors like construction and retail have, however, slowed more than expected this year.

Weak economic activity means cooler inflation, Armas said, and consumer prices will probably not rise at all in November.

Once temporary supply factors subside, annual inflation - now at the upper limit of the central bank’s target range of 1-3 percent - will slow to around 2 percent as early as next year, he said.


The economy has slowed to growth of around 5 percent. Last year it grew 6.3 percent.

The central bank said in October - as it has all this year - that the economy was growing near its potential - making a rate cut unnecessary, even as it loosened reserve requirements on banks to boost liquidity.

Last month Central Bank President Julio Velarde said the economic slowdown this year had “bottomed out” and that the economy would likely expand by 6.3 or 6.4 percent in the fourth quarter compared to the last three months of 2012.

“The change in message was very fast,” said Roberto Flores, the chief analyst with market firm Inteligo.

“It’s a huge boost to economic prospects and will help the economy recover gradually in coming months,” Flores said. “The downside is the abrupt change of message of the bank.”

The local sol currency slipped 0.21 percent on Friday following the rate change Thursday night and news of faster-than-forecast job growth in the U.S.

Armas with the central bank said fresh economic data like weaker cement purchases and supermarket sales prompted the surprise rate cut.

“New information pointed to less economic growth than expected,” he said. “Our messages are based on the information we have at the moment.”

All 18 foreign and local economists polled by Reuters this week had expected the central bank to hold the rate unchanged at 4.25 percent as it had since May of 2011.

A stronger U.S. economy could prompt the Federal Reserve to wind down stimulus measures sooner rather than later, throwing more cold water on Peru’s economy, as investment dollars are expected to flock north.

But Armas said economic activity is still expected to pick up in the fourth quarter compared to the third quarter, though not likely at the rate the economy could expand without stoking inflation.

Last month the central bank said it was considering changing its view of the potential growth rate to around 6.2 percent to 6.3 percent. [ID: nL1N0IE1HE]

The central bank has emphasized that the interest rate cut does not mean the start of a cycle of easing.

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