LIMA, Dec 11 (Reuters) - Peru’s central bank would likely hike the benchmark interest rate again if private economists’ expectations for inflation continue to rise above target and the real interest rate falls, the bank’s chief economist said on Friday.
The central bank hiked the benchmark interest rate on Thursday to 3.75 percent to tame above-target inflation. The rate hike was the second in four months, and was made after a spike in consumer prices in November pushed the inflation rate to a nearly four-year high of 4.17 percent, above the central bank’s 1-3 percent target range.
The bank’s chief economist, Adrian Armas, told reporters on a conference call that without any additional changes to monetary policy the real interest rate should gradually rise as inflation cools.
But if the real interest rate falls and inflation expectations rise, “it’s almost certain that the central bank is going to react by raising the benchmark interest rate,” Armas said.
The real interest rate is the benchmark interest rate after inflation is taken into account.
Armas called the current real interest rate of 0.50 percent “very low” and said monetary policy was still expansive even after Thursday’s move.
“An important factor in determining inflation is precisely how economic agents form their expectations of price increases,” Armas said.
Analyst and bank expectations for inflation in full-year 2015, 2016 remained above-target in a central bank poll this month. The poll was conducted before a recent spike in inflation became public and was the first to include October’s relatively low rise in consumer prices, suggesting the next survey might project a gloomier outlook.
Armas said the central bank expects a lower rise in consumer prices in November despite the sol currency’s nearly 3 percent depreciation last month.
The sol’s slide against the dollar amid expectations for a rate hike in the United States has fanned inflation in Peru’s highly dollarized economy this year.
The central bank last estimated 2015 inflation at 3.9 percent. (Reporting By Mitra Taj; Editing by Andrew Hay and Grant McCool)