Peru cuts interest rate after inflation slows back to target

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Peru cut interest rates to a two-year low after inflation returned to its target range for the first time since 2021.

The central bank reduced its key rate to 5.75% on Thursday, as forecast by 10 out of 13 analysts in a Bloomberg survey. The other three expected interest rates to be held at 6%.

With the slowest inflation among major Latin American economies, policymakers are able to focus on trying to revive an economy that suffered a recession last year due to political turmoil and severe weather. Annual inflation slowed to 2.4% last month, and the bank said it expects the rate to drop further.

“We forecast that the annual inflation rate will continue to slow, and remain around the center of the target range over the coming months,” the bank said in its statement.

Peru targets inflation of 2 percent, plus or minus one percentage point.

The central bank expects GDP growth of 3% this year, following a 0.6% contraction in 2023. A period of strong growth would be especially welcome after the national statistics agency reported Thursday that the number of Peruvians living in extreme poverty had reached an 11-year high.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow