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Peru’s central bank cut borrowing costs for the first time in almost a year and a half, joining a wave of Latin American countries doing likewise amid weak price data and a deteriorating global outlook.
The central bank board, led by its President Julio Velarde, lowered the benchmark lending rate to 2.50% from 2.75% on Thursday. Nine of 15 economists surveyed by Bloomberg expected the reduction while 6 analysts forecast no change.
Peru’s primary economic indicators show a negative performance, the board’s members wrote in the statement accompanying the decision. They forecast that inflation will remain around 2%, with a downward bias. “This decision doesn’t necessarily imply additional interest-rate reductions,'' they added.
Countries across the world are boosting stimulus to their economies as the intensifying trade conflict between the U.S and China takes its toll on trade and investment flows. In Brazil and Chile analysts expect further cuts as inflation undershoots, while Mexico also looks set to start trimming as soon as next week. In Peru domestic risks to growth have also risen after President Martin Vizcarra last week proposed holding a general election in April, a year earlier than planned, to end an impasse with Congress. Investment may slow in the months ahead as companies gauge what a potential change of government would mean for economic policy.
“One of the two levers of economic policy is starting to act,” Francisco Grippa, chief economist at Banco BBVA Peru, said before the board’s decision. “Business sentiment has deteriorated markedly in the last three months and is likely to deteriorate further.”
The price of copper, Peru’s top export, fell to its lowest level in more than three years last week after an escalation in international trade tensions.
Peru’s economy was already contending with a slide in exports, a slump in mining output and falling public investment, leading the central bank last month to cut its forecast for this year’s economic expansion to 3.4% from 4%.
(Adds Peru central bank statement in third paragraph)
--With assistance from Rafael Mendes.
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