Peru Ready to Cut Reserve Requirements After Keeping 4.25% Rate

Peru’s central bank kept borrowing costs unchanged for a 29th straight month and expressed willingness to reduce reserve requirements to counter slower growth.

The board, which is led by bank President Julio Velarde, maintained the overnight rate at 4.25 percent yesterday, matching the forecasts of all 14 economists surveyed by Bloomberg. Peru ties Malaysia for the longest interest-rate pause in developing countries.

Policy makers cut reserve requirements Sept. 30 for a third straight month after lowering their 2013 growth forecast to 5.5 percent from 6.1 percent on weaker export revenue. In a statement accompanying the decision, the central bank said it would ease reserve requirements if necessary to spur lending while noting economic growth remains near its potential and inflation pressures are easing.

“They’re not looking at the possibility of a rate cut in the short term,” Mario Guerrero, an economist at Scotiabank Peru SAA, said by phone from Lima yesterday after the decision. “The rate bias is neutral considering the outlook for inflation and provided the economy doesn’t decelerate any further.”

The economy expanded 4.5 percent in July, less than the 4.8 percent forecast by analysts surveyed by Bloomberg. Growth has lagged behind economists’ estimates in seven of the last eight months.

Velarde said Sept. 30 the slowdown will prove temporary as exports rebound and business sentiment recovers, spurring 6.2 percent economic growth in 2014, the fastest in South America.

Exports rose 1.2 percent in August, the first increase this year, after a surge in shipments of copper offset lower prices for the country’s biggest export, Peru’s statistics agency said yesterday in a report on its website.

Consumer prices increased 0.11 percent in September, the slowest pace in seven months, while the annual inflation rate fell to 2.83 percent from 3.28 percent in August. The central bank targets inflation of 1 percent to 3 percent.

Inflation will remain within the target range in the months ahead and expectations are anchored, the central bank said.

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

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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