Peru’s Central Bank Is Set to Hold Interest Rate Steady on Stubborn Core Inflation

(Bloomberg) -- Peru will likely hold its benchmark interest rate steady for a second straight month on Thursday as a measure of inflation that’s favored by the central bank remains high.

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Policymakers will keep rates unchanged at 5.75%, according to 10 of 12 analysts in a Bloomberg survey. Two forecast a quarter-point drop. Peru has cut rates in most months since last September, when they stood at a high of 7.75%.

Peru’s headline inflation remains the lowest among Latin America’s major economies and is running within the target band. Still, central bank President Julio Velarde has said he is paying close attention to pressures in a gauge of core prices that excludes food and energy. Countries including Mexico and Brazil have also struck a cautious tone by recently holding borrowing costs unchanged.

What Bloomberg Economics Says

“Peru’s central bank is likely to hold its benchmark rate at 5.75% for a second consecutive meeting. We expect policymakers to keep the door open for additional moves and reiterate that future decisions will depend on new data. Persistent core inflation, recovering activity and currency depreciation support our forecast.”

— Felipe Hernandez, Latin America economist

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Peru’s core inflation remained above 3% in June compared to the year prior, above the headline reading of 2.29%. The central bank maintains a target range for consumer price growth of 1% to 3%.

The Andean nation’s economy has also been growing faster than expected following a recession last year, which could further reduce the need for interest rate cuts in the short-term.

Activity grew 5.3% in April compared to the same month a year earlier and is expected to expand between 4.5% and 5% in May, according to the finance ministry. Peru’s statistics agency will release the May figures next week.

--With assistance from Rafael Gayol and Giovanna Serafim.

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