Peru Holds Rate at 4.25% as Price Rises Unexpectedly Stall

  • Prices were virtually unchanged in April as sol strengthened
  • Inflation rate is retreating from a four-year high in January

Peru’s central bank kept borrowing costs unchanged after raising them four times in the past year, as inflation slowed from a four-year high.

The central bank board, led by bank President Julio Velarde, maintained the key rate at 4.25 percent Thursday for a third consecutive month, matching the forecast of 15 of 17 economists surveyed by Bloomberg. Two analysts expected the board to raise to 4.5 percent.

In a statement accompanying the decision, the board pointed to lower food prices, a stronger currency and economic growth in line with potential as reasons for the pause.

The board stands ready to consider additional changes to the benchmark rate while it expects inflation to return to the target range in a “period of time similar to the horizon of effective monetary policy,” the statement said.

Consumer prices were virtually unchanged in April after rising in each of the previous 16 months, slowing the annual pace for a third straight month and allowing policy makers to extend their pause in the tightening cycle. The central bank won’t rush to raise again this year as household and corporate spending will remain sluggish, said Francisco Grippa, the principal economist at BBVA Banco Continental SA.

“Private sector spending growth has stabilized but at a low level and any improvement will be gradual,” Grippa said by phone from Lima. “Inflation is still above target but it’s easing and inflation expectations are starting to decline, so the central bank has less pressure to keep raising.”

Surging copper output in the world’s third-largest producer has boosted economic growth since the fourth quarter, offsetting a drop in private investment and a subdued job market.

Peru’s annual inflation rate fell more than analysts expected in April, dropping to 3.91 percent from 4.30 percent the month before. The central bank targets inflation in a range of 1 percent to 3 percent.

The sol has strengthened 2.4 percent against the U.S. dollar in 2016, ending a three-year slump that fueled imported inflation and hurt consumer and business spending.

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