Dec. 7 (Bloomberg) -- Peru’s central bank kept borrowing costs unchanged for a 19th consecutive month as the economy is expanding near its potential and questions about the global economy persist.
The five-member board, led by bank President Julio Velarde, yesterday kept the overnight rate at 4.25 percent, matching the forecasts of 12 economists surveyed by Bloomberg. Concern that the global economic outlook could deteriorate has led the central bank to keep rates unchanged for the longest period since Peru began targeting inflation in 2002.
Policy makers said the decision reflects “economic growth close to its potential and a still highly uncertain external backdrop,” according to a statement posted on the central bank’s website yesterday. Inflation will continue to slow as supply of some perishable foods improves, they said.
The central bank increased lenders’ reserve requirements three times since September to restrain credit growth and stem a rally in the sol, which rose to a 15-year high this week. Inflation last month slowed to the central bank’s target range of 1 percent to 3 percent the first time since mid-2011, giving policy makers leeway to gauge the effect of Europe’s debt crisis on investment and exports, said Cesar Penaranda, the head of economics at the Lima Chamber of Commerce.
“The outlook for next year is very similar to this year so there’s no need to change monetary policy,” said Penaranda, who’s also a vice president at Banco de Comercio, in a phone interview from Lima. “It’s not clear where the European situation is headed.”
The monetary authority increased the average reserve requirement for sol and dollar deposits by 0.75 percentage point on Oct. 30, the largest of the four increases this year.
The annual pace of bank lending slowed to 16.4 percent in October after reaching a six-month high in September on surging demand for car loans and mortgages, the central bank said Nov. 26.
The banking regulator last month told lenders to set aside more funds against potential losses on mortgages and car loans after delinquency rates rose to a two-year high of 1.79 percent in October.
The sol’s appreciation has increased the appeal of dollar-denominated credit, which accounts for 43.6 percent of all lending in Peru.
Private investment in roads, plant expansions, industry, infrastructure and house purchases will fuel bank lending growth of as much as 18 percent next year, said Walter Bayly, chief executive officer at Banco de Credito del Peru, the country’s biggest bank, in a Nov. 13 interview.
Gross domestic product expanded 6.5 percent in the third quarter from a year earlier, the fastest pace among Latin America’s seven biggest economies, as infrastructure and mining projects spur construction activity.
Mining investment next year will increase to as much as $10 billion from about $7 billion this year, Mining Minister Jorge Merino told Congress Nov. 29.
Copper, Peru’s top export, has gained 6.1 percent this year to $3.6385 a pound on the Comex in New York.
Total exports dropped 3.9 percent in October from a year earlier, and are down 3.6 percent in the first 10 months of 2012, the Trade Ministry said Dec. 3.
The annual inflation rate fell to 2.66 percent in November from 3.25 percent the previous month and was the lowest among Latin America’s seven largest economies. Velarde on Dec. 5 said inflation will slow to 2 percent in 2013 from 2.8 percent this year.
The yield on Peru’s benchmark 7.84 percent sol-denominated bond due August 2020 has fallen 1.83 percentage point to 3.92 percent this year.
The sol traded at 2.5749 per U.S. dollar yesterday, its strongest level since 1996. The currency has gained 4.7 percent in 2012, the 10-best performance against the dollar among 25 emerging market currencies tracked by Bloomberg worldwide.
The central bank will probably raise its benchmark rate as stronger global economy causes inflation to accelerate next year, said Nader Nazmi, an economist at BNP Paribas.
“With the economy growing so rapidly, you may get some inflation pressure building up,” Nazmi said in a phone interview from New York. “All you really need is some stabilization in the global economy and demand for Peru’s exports, and that’s likely to happen next year.”
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