Peru Unexpectedly Halts Key Rate Cuts Over Core CPI Fears

(Bloomberg) -- Peru unexpectedly kept borrowing costs unchanged as policymakers fret about stubborn core inflation.

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The central bank held its key rate at 5.75% on Thursday, as forecast by three of 12 analysts in a Bloomberg survey. The other nine had expected the bank to cut rates for a third straight month to 5.5%.

“Inflation excluding food and energy is showing some persistence associated with the services industry,” the bank said in its statement.

Headline inflation slowed to target last month for the first time in more than three years, and the Finance Ministry has urged the central bank to cut borrowing costs faster to boost economic growth. Peru’s economy shrank 0.6% in 2023, the second-worst contraction in 33 years.

Annual inflation cooled to exactly 2% in May, the mid-point of its target range, and Peru now has the lowest inflation among major Latin American economies. The central bank said it expects it to remain around its current level.

--With assistance from Rafael Gayol.

(Adds comment from central bank in third paragraph)

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