(Bloomberg) -- Peru will likely lower borrowing costs after a surprise hold last month and as inflation continues to hover around the center of the central bank’s target range.
Policymakers led by central bank chief Julio Velarde will probably reduce their key rate by a quarter point to 5% from 5.25%, according to 5 of 10 analysts surveyed by Bloomberg. The other five expect to see the rate kept at 5.25% for a second month.
Peru has the lowest inflation among Latin America’s largest economies, currently at 2.01%, just above the mid-point of the central bank’s 1%-to-3% target range. Price increases have stayed within that range for the past seven months. Still, the bank surprisingly held rates at 5.25% last month.
The central bank’s chief economist Adrian Armas has given some clues as to why and suggested the pace of cuts will continue to be gradual and not as fast as some would expect given the rate at which inflation has been tamed.
In a press conference, Armas told reporters the bank was focused on core inflation — price increases excluding food and energy costs — which have cooled more slowly than overall inflation. In October core inflation cooled to 2.5% from 2.6% in September. Armas said ideally core inflation would be closer to 2%.
He also said the economy was growing strongly and did not require a push from the central bank. The bank expects Peru’s economy to grow 3% this year and the government is betting that it can exceed those forecasts.
Fitch Ratings recently reaffirmed Peru’s investment-grade rating, giving some relief to the government which had been fending off criticism that its growing deficit could lead to a downgrade.
--With assistance from Rafael Gayol.
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