Peru raises its key interest rate to 7%

Bloomberg

Peru raised interest rates for a 15th straight month in a bid to get inflation back under control and limit the risk of capital flight as the US Federal Reserve withdraws stimulus.
The central bank raised its benchmark rate by a quarter of a percentage point to a two-decade high of 7%, in line with expectations. That’s up from 0.25% in August 2021.
“The board is especially sensitive to new information regarding inflation and its determinants, including the behavior of inflation expectations and economic activity, to consider additional modifications in the monetary stance,” the bank said in its statement.
The bank added it would do what is needed to get inflation back to its target range.
All the major inflation-targeting central banks in Latin America have tightened monetary policy this year as supply shortfalls, currency weakness and Russia’s invasion of Ukraine all stoked inflation. Policymakers in Peru and elsewhere in the region are also trying to prevent rising interest rates in the US from triggering a selloff in their currencies, according to Felipe Hernandez, Latin America economist at Bloomberg Economics.
Analysts are split over whether today’s increase will be the last in the current tightening phase as the economy cools. Peru has raised interest rates at a slower pace than Andean neighbors Chile and Colombia since its economy is less overheated, Hernandez said.
Central bank chief Julio Velarde said last week that policy makers probably won’t have to raise borrowing costs much further.
Peru’s economy will grow 2.8% this year, according to analysts surveyed by Bloomberg, down from more than 13% in 2021.