Peru cut interest rates for a second straight month Thursday, as inflation cooled more than expected and the country’s recession deepened.
(Bloomberg) — Peru cut interest rates for a second straight month Thursday, as inflation cooled more than expected and the country’s recession deepened.
The central bank reduced its policy rate to 7.25% from 7.50% on Thursday, as expected by 12 out of 13 analysts surveyed by Bloomberg.
“This decision doesn’t necessarily imply a cycle of successive reductions in the interest rate,” the bank said in its statement. “The board reaffirms its commitment to taking the necessary action to ensure that inflation returns to its target range over the forecast horizon.”
Among Latin America’s major economies, Brazil and Chile are also easing monetary policy, while Colombia and Mexico are expected to follow suit in the coming months.
Read More: Peru Inflation Cools as Central Bank Braces for Weather Shock
Peru’s economy contracted more than all forecasts in July, extending its recession. Last month, the central bank slashed its forecast for economic growth this year to 0.9% from 2.2%.
While the annual inflation rate has fallen to 5.04%, it still remains above the central bank’s target of between 1% and 3%. Central bank chief Julio Velarde has repeatedly pushed back his forecast for when inflation might hit the target band.
Read more: Uruguay Slows Easing Pace With Half-Point Interest Rate Cut
Currently, he expects Peru to end the year with 3.8% inflation, and for inflation to fall to 3% in early 2024. But he has recently warned even that forecast may be too soon due to the expected effects of the El Niño weather pattern, which can disrupt agriculture and push up food prices.
(Adds comment from the bank’s statement in third paragraph.)
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