Peru Unexpectedly Holds Benchmark Interest Rate at 6.25% After Inflation Speeds Up

Marcelo Rochabrun
·1 min read

(Bloomberg) -- Peru’s central bank unexpectedly held its benchmark interest rate unchanged on Thursday, snapping a streak of six straight reductions after annual inflation sped up above the target band.

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The bank held borrowing costs at 6.25%, as anticipated by only one of 13 analysts in a Bloomberg survey. The remaining 12 had forecast another quarter-point drop.

Policymakers led by Julio Velarde reiterated they expect inflation to slow toward the central bank’s 1%-3% target band in the coming months.

“The board reaffirms its commitment to adopting the necessary measures to ensure inflation returns to the target range,” they wrote in a statement accompanying their decision.

Peru’s inflation surprised economists last month when it accelerated to 3.29%, above the ceiling of the target range. In its statement, the central bank said weather risks associated with El Nino have decreased since the beginning of the year, but global conflicts still pose risks of higher fuel and freight costs.

The economy has been struggling to recover from last year’s recession, and is expected to enter a period of slow growth when it finally does. Gross domestic product shrank 0.6% in 2023, the largest contraction in 33 years excluding the pandemic. Policymakers said most early indicators of economic activity have improved in February but remain negative.

The pipeline of new mining projects in the copper powerhouse has slowed to a trickle, and Peru’s state-owned oil company is going through a cash crunch.

--With assistance from Rafael Gayol and Giovanna Serafim.

(Updates with central bank statement starting in second paragraph.)

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