August 21, 2017 / 8:51 PM / a year ago

Peru inflation to surpass 3 percent on spike in water fees: central bank

LIMA (Reuters) - Peru’s central bank president said on Monday the inflation rate will likely rise above 3 percent this month, surpassing the upper limit of the bank’s 1 percent to 3 percent target range, due to a “very strong” spike in water utility rates.

A Central Bank of Peru employee shows a commemorative 1 Sol silver coin, with the image of Santa Rosa de Lima (Saint Rose of Lima), during a news conference in Lima, Peru, August 21, 2017. REUTERS/Mariana Bazo

However, Julio Velarde added that the inflationary pressure would be temporary and reiterated that the bank has room to cut the benchmark interest rate once or twice more this year.

“We have no reason to change the stance of monetary policy,” Velarde told reporters on the sidelines of an event.

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“We’ll be temporarily out of the target range but will end the year with inflation at 2.2 percent” as previously forecast, Velarde said.

Water utility Sedapal has warned that user fees will rise as it reduces subsidies for low-income households that it says had been misused. The utility is encouraging more responsible water use in Peru’s desert capital Lima of 10 million, which relies on water from rapidly-melting glaciers in the Andes.

“It’s a very strong increase in water” fees, Velarde said, describing it as the sharpest spike in more than two decades.

The central bank held its key interest steady at 3.75 percent this month but said it would pay special attention to data on inflation in order to resume monetary easing “in the short-term.”

The annual inflation rate rose to 2.85 percent in July as food prices rebounded following a sharp drop earlier this year after severe flooding that disrupted transportation and farm work.

Reporting By Teresa Cespedes, Writing By Mitra Taj

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