Peru Holds Key Rate at a Two-Decade High as Inflation Dips

Peru held interest rates at a 22-year high on Thursday as policymakers wait for more evidence that inflation is slowing decisively toward its target.

(Bloomberg) — Peru held interest rates at a 22-year high on Thursday as policymakers wait for more evidence that inflation is slowing decisively toward its target. 

The central bank left its benchmark interest rate at 7.75%, matching the forecast of all 12 economists surveyed by Bloomberg. 

Monetary authorities in Peru, Brazil, Chile, Mexico and Colombia are forecast to ease policy this year as inflation cools across the region. However, Peru’s central bank chief Julio Velarde has said he’s wary of the risk of easing prematurely before inflationary pressures have been properly tamed. 

“We forecast that annual inflation will remain on its downward trend over the next months, being close to the target range at the end of the year and within the range at the start of 2024,” the bank said in its policy statement. 

Read more: Peru Central Bank Chief Wary of Cutting Interest Rates Too Soon 

Inflation fell more than analysts expected in June to 6.46%, but remains well above the bank’s target band of 1%-3%. 

Velarde revised his year-end inflation forecast last month, from 3% to 3.3%. An expected El Nino weather pattern could further weaken the economy and pressure food prices later this year.

The economy’s performance has been weaker than expected due to political unrest this year. The central bank halted its steepest-ever series of interest rate hikes in February, on concern that massive anti-government protests would hammer the economy. 

–With assistance from Rafael Gayol.

(Adds comment from bank in 4th paragaph)

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