Peru Surprises, Keeps Lowest Rate Among Big Regional Peers – BNN Bloomberg

(Bloomberg) — Peru surprisingly held its benchmark interest rate unchanged Thursday as the economy grows above expectations and borrowing costs already rank as the lowest among Latin America’s major economies.

The central bank held its benchmark rate at 5.25%, which last month marked a two-year low, as forecast by just two of 12 analysts surveyed by Bloomberg. Five of the bank’s last eight rate decision have been unexpected.

Peru’s inflation surprisingly cooled down to 1.78% last month — the first reading below 2% since 2020 — which led analysts to strongly believe that a third straight cut was on the horizon. The bank targets annual inflation of between 1% and 3%, and price increases in Peru have stayed within the band for six months now.

The bank said in a statement published after the interest rate decision that inflation would remain within the target band but that it would increase slightly in the fourth quarter due to base effects.

Peru has the lowest inflation among Latin America’s major economies and also among much larger nations like the US and the UK. Under Velarde’s leadership, Peru’s monetary policy has often performed better than its peers, with lower inflation and a more stable currency.

The country’s benchmark rate is slightly higher than the upper bound of the Federal Funds Rate, which is normally seen as a floor for emerging market economies. But Velarde has suggested in the past that he is not too concerned about the Fed, saying he could cut rates to as much as 1 percentage-point below the US.

Peru’s economy has also been growing faster than expected, most recently rising 4.47% in July. Peru’s statistics agency will release economic activity figures for August next week.

(Adds details of bank’s unexpected decisions in second paragraph. An earlier version corrected the headline on the chart)

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Publish date : 2024-10-10 14:09:00

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