November 8, 2017 / 6:10 PM / a year ago

UPDATE 1-Peru central bank chief says inflation might end 2017 under 2 pct

(Adds quote from Velarde, context)

By Teresa Cespedes

LIMA, Nov 8 (Reuters) - Peru’s inflation rate will likely end the year at about 1.9 or 2 percent - at the center of the central bank’s target range - thanks to a “rapid” decrease in consumer prices, the bank’s chief said Wednesday on the eve of its interest rate decision.

The central bank had forecast 2017 inflation at 2.3 percent in September, before the annual inflation rate dropped to 2.04 percent in October as consumer food prices continued to retreat from a flooding-related spike this year.

“We’re seeing a rapid decrease in inflation,” Julio Velarde told journalists on the sidelines of an event. “We expect inflation to end the year at 1.9 to 2 percent and 2 percent next year.”

The outlook gives the bank more room to weigh cutting the benchmark interest rate for a fourth time this year as the economy recovers from a sharp slowdown. The market is divided about whether the bank will lower the rate on Thursday, with nine out of 14 analysts polled by Reuters forecasting a hold.

Velarde said year-on-year economic growth would likely quicken to at least 3.7 percent in the fourth quarter, though it probably would not change the bank’s view of a 2.8 percent expansion in all of 2017.

In September, the economy likely grew by at least 3 percent from the same month a year earlier thanks to mining and an ongoing recovery in construction activity, Velarde said.

Last week Velarde told Reuters the economy was improving faster than expected but that bets on a new rate cut this year likely grew after the drop in inflation in October.

The central bank aims to keep inflation between 1 and 3 percent. The rate has not dipped below 2 percent since 2009, during the global financial crisis.

Velarde has said that supply, not demand, was behind retreating consumer prices.

Reporting By Teresa Cespedes, Writing By Mitra Taj; editing by Diane Craft

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