Peruvian bonds rose to their highest in almost three months as traders bet the central bank will keep its benchmark lending rate on hold for longer than expected as the economy slows.
The yield on the nation’s 9.91 percent sol-denominated bond due May 2015 fell one basis point, or 0.01 percentage point, to 5.44 percent at 12:29 p.m. New York time, according to prices compiled by Bloomberg. The bond’s price rose 0.02 centimo to 115.21 centimos per sol, the highest since April 12.
The central bank held the benchmark rate unchanged at 4.25 percent for a second month yesterday, citing a slowdown in inflation and some economic indicators. The bank may extend the pause “for a very long time” as mining investment slows amid concern President-elect Ollanta Humala’s plan to introduce a mining windfall tax will make the industry less competitive, said Gustavo Rangel, an economist at ING Financial Markets in New York.
“As investment in the mining sector represents such a big portion of Peru’s GDP, it’s only natural the central bank pauses,” Rangel said. “Growth in the second half of the year will be much lower than originally expected and possibly that may continue into next year. The central bank will probably acknowledge at some point the major downside to the growth outlook.”
Economic expansion probably slowed to an annual pace of about 6.5 percent in the second quarter, the lowest in a year, as electricity output and cement sales eased, Finance Minister Ismael Benavides told reporters in Lima on July 6.
Mining companies will meet with Humala’s advisers to reach a “technical” solution on the windfall tax that won’t make Peru less competitive than nations like Chile and Canada, Pedro Martinez, president of the National Society of Mining, Petroleum & Energy, said yesterday.
The sol fell 0.1 percent to 2.7455 per U.S. dollar, from 2.7440 yesterday, according to Deutsche Bank’s local unit.