(Bloomberg) — Peru will likely keep borrowing costs unchanged for a second straight meeting Thursday after inflation slowed much less than expected last month to remain above the central bank’s target band.
Policymakers are expected to hold the benchmark rate at 6.25% according to 12 of 13 economists surveyed by Bloomberg. The outlier analyst expects the bank to lower the key rate a quarter-point to 6%. Peru had cut interest rates for six straight months before pausing in March after inflation surprisingly sped up in February.
The most recent inflation figure showed price increases cooled to an annualized 3.05%, surpassing the upper limit of the central bank’s target band of 1% to 3% annual inflation. Policymakers led by bank President Julio Velarde have said inflation would fall below 3% in the first few months of this year, but it has so far proved to be more resilient and persistent than they expected.
Peru’s inflation has slowed from nearly 9% in mid-2022, and its economy remains weak after shrinking 0.6% in 2023, the largest contraction in 33 years excluding the pandemic. While it is on a path to a very modest recovery, analysts expect it to enter a stage of low growth similar to much of Latin America.
What Bloomberg Economics Says
“The central bank is likely to hold its benchmark rate at 6.25% for a second consecutive meeting. Interest rates are still high and monetary conditions tight. We expect policymakers to maintain a cautious tone, saying future decisions will depend on new data. We see the easing cycle resuming later this year, when slower inflation will provide more flexibility.”
— Felipe Hernandez, Latin America economist
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Peru’s decision will be published on the central bank’s website at 7 p.m. ET.
Lawmakers are readying a vote on a bill that could allow Peruvians to withdraw as much as $7 billion from their private pension funds. Supporters say that the extra cash could boost growth and help workers navigate the weak economy. Velarde has opposed the bill but said in March that it poses no inflation risk.
Political risk in Peru — perennially high — is now once again on the rise as President Dina Boluarte faces a criminal investigation over potential illegal enrichment. Prosecutors have focused on several Rolex watches that Boluarte has been seen wearing in public. Boluarte has denied any wrongdoing and denied any enrichment, saying that a friendly politician had loaned her the watches.
–With assistance from Rafael Gayol.
©2024 Bloomberg L.P.
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