(Bloomberg) — Peru left interest rates unchanged for a second month as policymakers fret about stubborn core inflation while economic activity registered its fastest growth in more than two years.
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The central bank held its benchmark rate at 5.75% on Thursday, as forecast by 10 out of 13 analysts in a Bloomberg survey. The other three had expected the bank to cut rates to 5.5%.
“The board is especially attentive to new information regarding inflation and its determinants, including the evolution of underlying inflation, inflation expectations and economic activity, to consider, if necessary, additional modifications in the monetary policy position,” the bank said in its statement.
Although headline inflation has been back in its target band since April, policymakers are focused on a core price gauge, which tracks underlying trends by excluding volatile food price and energy costs. That measure has stalled in recent months and was little-changed in June at 3.1%, compared to overall inflation at 2.29%.
Peru targets annual headline inflation of 2 percent, plus or minus one percentage point.
Economic activity expanded 5.3% year-over-year in April, beating all forecasts, as the economy rebounds from last year’s recession. That recovery has eased pressure from the government on the independent central bank to slash rates faster.
Copper Boost
Peru is a major copper producer and this year’s rise in prices for the metal could give the economy an extra boost. The resumption of work at Southern Copper’s Tia Maria copper project, whose construction had been delayed since 2019, will also stoke activity.
Peru’s interest rate and inflation are the lowest among Latin America’s major economies. The key rate is only slightly above that of the US Federal Reserve, which is sometimes seen as a natural lower limit for emerging market economies. Still, central bank chief Julio Velarde said in May that the interest rate could fall as much as one percentage point below that of the Fed.
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