Peru cuts interest rate again as prices ease but recession lingers

By Marco Aquino

LIMA (Reuters) – Peru’s central bank again lowered its benchmark interest rate by 25 basis points to 7.00% on Thursday, as the monetary authority in the Andean nation continues to ease borrowing costs in an effort to help claw its way out of a recession.

The bank’s third consecutive cut comes as the rate of rising consumer prices has been coming down.

But the latest decision to cut rates does not necessarily imply a cycle of successive rate reductions, the monetary authority said in a statement.

It added that future adjustments to the key lending rate “will be conditioned on new information on inflation and its determinants.”

In October, annual inflation in Peru’s mining-dependent economy decelerated to 4.34% to reach its lowest level in over two years, according to official data.

But the world’s No. 2 copper producer had already slid in to a technical recession earlier this year due to the adverse impacts of the weather phenomenon known as El Nino, lower private investment and lingering effects from earlier social conflicts.

The statement noted that inflation’s downward trend is expected to continue, with the average rate of consumer prices expected to reach the central bank’s target of 2%, plus or minus 1 percentage point, early next year. The downward trend is driven by a moderation of prices internationally, according to the statement.

Earlier on Thursday, Peru’s government announced a package of measures aimed at boosting investments in the country’s critical mining sector.

Economy Minister Alex Contreras, who has said he expects a fourth-quarter recovery, said the measures should lead to a surge in funding for public and private projects of up to $8 billion in 2024, from $2.3 billion this year.

(Reporting by Marco Aquino in Lima; Editing by David Alire Garcia and Matthew Lewis)