Peru Keeps 3.5% Rate to Bolster Economy Amid Slowing CPI

  • Surge in copper output is fueling fastest growth in a year
  • Inflation expectations steadied by September's surprise hike

Peru kept borrowing costs unchanged for a second month as policy makers maintain monetary stimulus as the economy recovers and inflation slows.

The central bank board, led by bank President Julio Velarde, kept the rate at 3.5 percent, matching the median estimate of all 17 economists surveyed by Bloomberg.

Inflation expectations are converging to the target range while the economy is recovering gradually though growth remains below potential, the central bank said in a statement accompanying its decision. Inflationary pressure from currency weakness and some food items isn’t expected to affect other prices in the economy in a generalized way, it said. Peru’s economy is expanding at the fastest pace in a year on a surge in copper output, even as consumer demand and construction activity remains weak.

Economic growth “has increased above all because of mining,” Luis Gonzalez-Prada, an analyst at Apoyo Consultoria, said by phone from Lima before the bank’s decision. “Domestic demand remains cold so for that part of the economy, stimulus is still needed.”

South America’s sixth-largest economy expanded at a 3.2 percent annual pace in the three months to August and probably maintained that pace in September, according to the median estimate of analysts surveyed by Bloomberg. That compares with a 2.4 percent increase in 2014 that was the slowest in five years.

Policy makers cut their key rate to a four-year low in January after exports slumped and investment contracted. Low rates are starting to show in credit growth, with outstanding loans rising 10.4 percent in September from the year earlier, the fastest pace this year, according to central bank data.

Consumer prices rose 0.14 percent in October, while annual inflation slowed for a second month to 3.66 percent. Analysts surveyed by the central bank in October saw 3.2 percent inflation for 2016, down from 3.3 percent in the September poll, after four consecutive months of gains.

The central bank targets inflation in a range of 1 percent to 3 percent.

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