Peru Yields Fall as Slowing Inflation Pares Bets on Rate Boost

Peru’s sol-denominated bonds rose, pushing yields to a record low, as the slowest inflation in 20 months damped speculation the central bank will increase borrowing costs.

The yield on the nation’s benchmark 7.84 percent sol- denominated bond due in August 2020 fell two basis points, or 0.02 percentage point, to 4 percent at 3:06 p.m. in Lima, according to Deutsche Bank AG’s local unit.

Annual inflation slowed to 2.66 percent in November from 3.25 percent in the prior month, the national statistics agency said Dec. 1. The median forecast of analysts surveyed by Bloomberg was for a 2.8 percent pace. The central bank has an inflation target of 2 percent plus or minus 1 percentage point.

“Inflation moving back into the central bank’s target range has mitigated the potential risk of an increase in the central bank’s rate,” said Diego Llona, a bond trader at Banco Santander in Lima. “Growth has exceeded expectations for much of this year, which fueled speculation there would be a rate increase to slow the economy. Now that inflation is under control, there is no need.”

The sol depreciated 0.1 percent to 2.58 per U.S. dollar at today’s close, according to Deutsche Bank AG’s local unit.

The central bank’s board meets Dec. 6 to set its policy rate. Policy makers will keep the benchmark at 4.25 percent for a 19th straight month, according to all of the economists in a Bloomberg survey.

Gross domestic product expanded at a 6.5 percent annual pace in the third quarter, the fastest in a year, the statistics agency said Nov. 15.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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