Peru keeps 4.25 pc rate as inflation retreats amid sol’s rally

Bloomberg

Peru kept borrowing costs unchanged for a second month as slowing inflation and a rally in the sol give policy makers more time to gauge the impact of earlier rate increases.
The central bank board, led by bank President Julio Velarde, maintained the key rate at 4.25 percent, matching the forecasts of 11 of 14 economists surveyed by Bloomberg. Three analysts expected the board to raise to 4.5 percent.
In a statement accompanying the decision to pause, policy makers cited declining food and utility prices, the sol’s appreciation and a recovery in growth, adding they stand ready to consider additional rate increases.
“Recent indicators for economic activity and business sentiment point to GDP growth rates similar to potential,” the statement said.
Inflation expectations eased last month after the central bank raised borrowing costs at four of its previous seven meetings and the sol ended an almost two-year losing streak against the dollar. A presidential runoff between two business-friendly candidates likely will fuel a rebound in private investment in the coming months, but for now the labor market remains weak, Banco de Credito del Peru said.
“Raising rates too much in an economy that’s standing still or not growing much could hurt consumption,” said Cesar Fuentes, a professor at the Esan business school in Lima. “It’s a dilemma they’ll probably face all year as inflation is high.”
Peru joins Chile in extending its pause amid slowing inflation and sluggish domestic demand.
Rising output from new copper mines has bolstered growth in the world’s third-largest producer of the metal, offsetting weak construction activity and falling investment.