Peru Holds Key Rate at 7.75% as Sticky Inflation Deters Stimulus

Peru left interest rates unchanged for a third straight month as stubborn inflation deters policymakers from cutting borrowing costs to stimulate the slowing economy.

(Bloomberg) — Peru left interest rates unchanged for a third straight month as stubborn inflation deters policymakers from cutting borrowing costs to stimulate the slowing economy.

The central bank held its key interest rate at 7.75% at its April 13 meeting, as forecast by all 11 analysts surveyed by Bloomberg.

The bank unexpectedly halted its steepest-ever series of monetary tightening in February over fears of a sharp slowdown in growth. In recent weeks, flood damage from heavy rains has hit an economy that was already reeling from mass unrest earlier in the year.

Brazil and Chile have also halted monetary tightening, while Mexico and Colombia have continued to raise interest rates at recent meetings. Many countries in the region are likely to need high interest rates for much of this year or longer, since progress in curbing core inflation has stalled, the International Monetary Fund said in a report published Thursday.

In January, Peru suffered its first economic contraction in almost two years, as dozens of highway blockades by anti-government demonstrators hurt mining, tourism and agriculture.

While Peru’s protest movement has lost steam, the economy has been hit by a new shock in the form of widespread flooding in the north of the country.

Economic growth will slow to 2.4% this year, from 2.7% in 2023, according to the IMF’s forecast.

El Nino

The country is also on alert for the El Nino phenomenon this year, according to a state agency which monitors weather. El Nino occurs when warmer waters hit Peru’s cold Pacific Coast, often causing heavy rains and flooding.

The finance ministry estimated the cost of the rains so far at 3.5 billion soles ($930 million).

Annual inflation is cooling more slowly than the central bank had forecast, and still at 8.4%, from 8.66% at the height of the unrest in January. The central bank targets annual consumer price rises of between 1% and 3%.

–With assistance from Robert Jameson.

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