Peru Keeps 3.25% Rate as Inflation, GDP Outlook Deteriorates

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Peru kept borrowing costs unchanged at a four-year low as an economic rebound falters and the inflation rate reaches a 14-month high.

The central bank board, led by President Julio Velarde, maintained the overnight rate at 3.25 percent for a seventh straight month, as forecast by all 19 economists surveyed by Bloomberg.

While the economy is recovering, recent indicators show growth remains below potential, the board said in a statement accompanying its decision. Inflation expectations have increased to the top of the central bank’s target range, policy makers said in the statement.

The board is ready to consider, if needed, “changes to the benchmark rate that steer inflation to the target range” during the monetary policy horizon, the statement said.

Peru targets inflation in a range of 1 percent to 3 percent.

Peru’s largest lenders cut their 2015 growth forecasts this month as rising copper shipments fail to compensate for a second year of falling private investment. At the same time, sol weakness is keeping inflation above policy maker’s target range and deterring policy makers from cutting rates, said Pablo Secada, chief economist at the Peruvian Economy Institute.

“GDP growth isn’t going anywhere,” Secada said by phone from Lima. “Consumption is growing at a slower pace every quarter.”

Credicorp Ltd, Peru’s largest financial service company, cut its 2015 growth forecast to as low as 2.5 percent on Aug. 11 from 3.5 percent. BBVA Banco Continental also forecast growth of 2.5 percent, barely higher than last year’s 2.4 percent expansion, which was the slowest in five years.

Copper output from new mines boosted exports in June, while lower imports stemming from weaker domestic demand left Peru with its first trade surplus this year.

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