(Bloomberg) — Peru raised interest rates for a fifth straight month as the economy grows at the fastest pace in Latin America and inflation exceeds the upper limit of its target range.
The central bank lifted its key interest rate by half a percentage point to 2.5%, in line with the forecasts of all nine economists surveyed by Bloomberg. The move unwound all the rate cuts implemented after the pandemic hit last year.
“We judge that it is appropriate to maintain an expansionary monetary stance for a prolonged period, through the gradual withdrawal of monetary stimulus,” the bank said in its statement.
Central banks in Brazil, Mexico, Chile and Colombia have also been withdrawing stimulus at recent meetings to curb inflation pressures as their economies rebound from the pandemic. Brazil this week delivered its second-straight rate increase of 1.5 percentage point and signaled more to come.
Read More: Brazil Says World’s Boldest Rate-Hike Cycle Is Far From Over
Peru last year suffered one of the world’s most lethal and economically-destructive Covid-19 outbreaks, leading to an aggressive easing cycle that took the benchmark rate to a record low of 0.25%. But now the nation is enjoying the region’s fastest recovery, even amid political turmoil. The economy will grow 12.3% this year, according to analysts surveyed by Bloomberg, the fastest among 15 Latin American economies.
What Bloomberg Economics Says
“Forward guidance suggests the central bank is looking for conditions to pause or moderate rate hikes, to keep some accommodation for a prolonged period and support the weak growth outlook. High inflation, lingering pressure on prices and increasing inflation expectations have not allowed that course.”
Felipe Hernandez, Latin America economist
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Annual inflation dipped slightly to 5.7% in November, after touching a 12-year high the previous month. However, that still exceeds the upper limit of the target range, which is 2%, plus or minus one percentage point. The bank said it expects inflation to return to its target range in the second half of next year.
Leftist and center parties in congress this week succeeded in blocking an initial attempt to start impeachment proceedings against President Pedro Castillo.
Read More: Peruvian Congress Rejects Attempt to Impeach President Castillo
(Updates to add comment from bank in 3rd and 6th paragraphs)
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