Humala Joins Peru Central Bank in Expanding Stimulus Effort

Peru approved measures to increase fiscal spending as the central bank expands monetary stimulus to counter the sharpest economic deceleration since 2009.

The government approved a one-off 200 sol ($72) bonus for government workers this month and extra financing for health and education projects, in a decree signed by President Ollanta Humala and published today in the state newspaper El Peruano.

Peru’s $200 billion economy is slowing after weaker Chinese demand triggered a slump in sales of metals that account for half its exports. Peru’s central bank cut its key lending rate yesterday for the first time in eight months citing slowing private investment.

“In recent weeks a series of external indicators have been published that reflect a more abrupt external deceleration than initially expected,” the decree said. A deterioration in business confidence and declines in exports, imports and public investment merit “extraordinary measures,” it said.

Public investment fell in June even after the government approved fiscal stimulus equivalent to 1.2 percent of gross domestic product for this year, the biggest since the 2009 recession.

The decree published today also allows workers to dip into a special savings program to finance expenditure until Dec. 31.

Rate Cut

The central bank lowered the overnight rate by a quarter-percentage point to 3.75 percent yesterday after the economy expanded in April at its slowest pace since the 2009 recession.

Economic activity rose 2 percent in April from a year earlier, after a decade of growth averaging 6.3 percent, the fastest in South America.

The economy is growing below potential and “should that continue for longer than desired, there could be another reduction in the benchmark rate,” Adrian Armas, the central bank’s research director, told reporters during a conference call today.

The pace of expansion in May and June was similar to April, Armas said.

Peru’s Congress last week approved legislation to streamline bureaucracy, reduce business overhead and spur infrastructure, mining and hydrocarbons projects. The measures are designed to sustain growth in the medium term while providing an immediate boost to investor confidence, Finance Minister Miguel Castilla told lawmakers June 25.

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