Peru Unexpectedly Cuts Overnight Rate to 4% to Revive Growth

Peru’s central bank unexpectedly reduced borrowing costs for the first time in four years to bolster the commodity-dependent economy after exports slumped.

The board, led by bank President Julio Velarde, cut the overnight rate by a quarter-point to 4 percent from 4.25 percent, surprising all 15 economists surveyed by Bloomberg who forecast no change. Peru last cut rates in August 2009 when the economy was in recession.

Policy makers stepped up efforts to revive growth as falling export revenue damps investment in the third largest copper producer. The central bank reduced reserve requirements Sept. 30 for a third straight month while the government reduces bureaucracy slowing $27 billion of investment projects. Inflation will ease to about 2 percent next year, the mid-point of policy makers’ target range of 1 percent to 3 percent, Velarde said Sept. 20.

The economy expanded 4.3 percent in August, less than the 4.5 percent forecast by analysts surveyed by Bloomberg. Growth has lagged behind economists’ estimates in six of the last seven months. Consumer prices rose 0.04 percent last month while annual inflation accelerated to 3.04 percent from 2.83 percent in September.

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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