(Bloomberg) -- Peru cut interest rates on Thursday after core inflation, a metric closely monitored by the country’s policymakers, fell for a fourth month.
The central bank lowered its benchmark rate to 5% from 5.25% as forecast by six of 11 analysts surveyed by Bloomberg. The other five expected a second straight hold at 5.25%.
“The real interest rate is approaching the level estimated as neutral,” at which it neither stimulates nor cools the economy, the central bank said in its policy statement.
Inflation is expected to remain within its target band for the foreseeable future, but might pick up slightly in coming months due to base effects, the bank said.
Forecasting Peru’s monetary policy has been a challenge this year, with five of the last eight decisions prior to Thursday’s meeting coming as a surprise.
Inflation hit 2.01% in October, just above the midpoint of the 1%-to-3% target range. That puts Peru in an enviable position, with inflation under control and lower benchmark borrowing costs than its neighbors.
The central bank’s chief economist Adrian Armas recently outlined why policymakers were not cutting at a faster pace. He pointed to core inflation - price increases excluding food and energy costs - which have cooled more slowly than overall headline inflation. Core inflation slowed to 2.5% in October, however, paving the way for a cut.
The economy has also been growing faster than expected and should expand around 3% this year, but the government is hopeful that it can beat those forecasts.
Peru is set to host world leaders from the Asia-Pacific region next week, a high-level summit that President Dina Boluarte also hopes will boost the economy. Peru’s statistics agency will also release economic activity figures next week for the month of September.
The U.S. Federal Reserve lowered its key rate by a quarter percentage point on Thursday, to a range of 4.5% to 4.75%. The second-straight rate cut followed a larger, half-point reduction in September, extending efforts to keep the US economic expansion on solid footing.
--With assistance from Rafael Gayol.
(Updates with comments from central bank in third paragraph.)
©2024 Bloomberg L.P.