Peru’s central bank held its benchmark interest rate steady for a seventh straight month late on Thursday as inflation remains above target even after a recent slowdown.
(Bloomberg) — Peru’s central bank held its benchmark interest rate steady for a seventh straight month late on Thursday as inflation remains above target even after a recent slowdown.
The central bank left borrowing costs at 7.75%, a 22-year high, matching the forecasts from all but one of 14 economists surveyed by Bloomberg. One analyst expected a quarter-point reduction to 7.5%.
The bank removed a key line from its monthly statement on the decision, one that suggested rate hikes were still on the table. The bank now only says that future interest rate decisions will be based on upcoming inflation data. It also said inflation had fallen “significantly” over the past two months.
Peru central bank head Julio Velarde has repeatedly warned he’s wary of cutting rates too soon out of fear that inflation may bounce back. Still, economists are starting to mull the odds of borrowing cost reductions soon as price pressures ease. Regionally, Brazil and Chile have already kicked off easing cycles, while Colombia and Mexico are expected to follow in coming months.
Read More: Peru Inflation Dips Sharply, Bolstering Chances of Key Rate Cuts
Annual inflation eased to 5.88% in July from 6.46% a month earlier, still above the central bank’s target band of 1%-3%. Policymakers have said price-growth will stand at 3.3% at year’s end, according to their latest projections.
Last month’s inflation slowdown has sparked growing speculation among economists that cuts to borrowing costs are on the horizon. Analysts at Goldman Sachs Group Inc. have said easing could start in September, while Bank of America said the first cut would come in October.
Meanwhile, there are growing signs Peru’s economy is weakening and heading toward a mild recession. Finance Minister Alex Contreras said this month that gross domestic product likely contracted in the first half of the year.
–With assistance from Rafael Gayol.
(Updates with details from central bank statement in third paragraph)
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