October 20, 2017 / 2:00 AM / a year ago

UPDATE 1-Peru cenbank chief sees negative Oct. inflation, higher growth in Q4

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LIMA, Oct 19 (Reuters) - Consumer prices in Peru will likely fall in October, which would mark the second straight negative inflation reading after prices fell 0.02 percent in September, Peruvian Central Bank President Julio Velarde told reporters on Thursday.

Velarde said the South American country’s economy would likely grow between 2.5-2.7 percent year-over-year in the third quarter of 2017, and between 3.5-3.7 percent in the fourth quarter.

Deflation in October would mark the fifth negative monthly reading this year, as prices have fallen following rapid inflation in early 2017, when severe flooding caused a spike in food prices.

“It is a reversal of shocks, it is not that demand is weak,” Velarde said on the sidelines of an event in Lima. “It is a drop in inflation due to supply, which is positive and reactivates the economy, because prices fall and people have more money to buy other things.”

He reiterated that inflation would end the year between 2.2 and 2.3 percent, within the monetary authority’s 1-3 percent target range. The bank kept its benchmark interest rate unchanged at 3.5 percent last week, citing expectations of an economic recovery.

“We do not only look at inflation,” Velarde said on Thursday when asked if the negative reading would prompt the bank to adopt a more flexible monetary policy. “It will depend on what happens with inflation expectations, and what happens with economic activity and internal demand.”

In a speech earlier at the event, Velarde said the demand for Peruvian bonds among foreign investors was “enormous.” (Reporting by Teresa Cespedes; Writing by Luc Cohen; Editing by Sandra Maler)

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