Peru lifts key rate to 13-year high

Bloomberg

Peru raised interest rates to a 13-year high to tame soaring inflation that has triggered mass unrest in recent days.
The central bank lifted its key rate half a percentage point to 4.5%, its ninth straight hike, in line with analyst forecasts.
“The significant rise in international prices of energy and food since the second half of last year, accentuated recently by international conflict, has led global inflation rates to rise at magnitudes not seen for many years in developed economies and in the region,” the bank said in the statement announcing its decision.
The bank is withdrawing stimulus in response to the fastest consumer price rises since the 1990s, but its job is being complicated by the chaos engulfing the nation. Highway blockades by protesters have disrupted food supplies, while the government this month raised the minimum wage 10% to
help Peruvians hit by rising prices.
Latin American central banks have led global monetary tightening as inflation accelerated beyond its target across all the region’s major economies.
Now, policy makers are facing a new challenge as extra inflationary pressures emerge from Russia’s invasion of Ukraine.

Other emergency measures, such as a fuel tax cut, will work in the opposite direction, and help keep inflation down.
“The impact of the protests are likely inflationary but some government measures related to food and fuel prices could have an offsetting effect,” said Aaron Gifford, a sovereign debt analyst at T. Rowe Price in Baltimore.
While the central bank is still trying to calculate the size of the shock, it makes sense for it to continue on a predictable path of monthly half-point increases, Gifford said.
Policy makers also need to calculate whether political turmoil is affecting the real economy. President Pedro Castillo survived a second impeachment attempt in congress last month, only to face mass protests in the streets days later.
In recent days, farmers and truckers protesting against the rising cost of fuel and fertilizers temporarily blocked highways, Castillo’s government imposed a curfew on the capital, and protesters fought mounted police.
Latin American central banks have led global monetary tightening as inflation accelerated beyond its target across all the region’s major economies. Now, policy makers are facing a new challenge as extra inflationary pressures emerge from Russia’s invasion of Ukraine.
Peru’s annual inflation accelerated to 6.8% last month, its fastest pace since 1998. Even so, that’s still lower than the rate in Brazil, Mexico, Chile and Colombia.