Peru raises interest rate to 5%, its highest level since 2009

(Bloomberg) — Peru raised its interest rate to the highest level in 13 years to curb soaring inflation that sparked a series of riots last month.

The central bank raised its benchmark rate by half a percentage point to 5%, in line with the forecasts of the eight economists surveyed by Bloomberg.

Policymakers around the world are withdrawing stimulus after supply chain disruptions, rising commodity prices and Russia’s invasion of Ukraine stoked inflationary pressures. Last week, the US Federal Reserve accelerated its pace of tightening, raising its benchmark rate by half a percentage point.

Peru faces strong inflationary pressure from food prices, which could worsen due to shortages of agricultural inputs caused by the war in Ukraine, raising the specter of a national hunger crisis. Many economists, including former Finance Minister Pedro Francke, expect more expensive fertilizers to continue to drive up food prices in the second half of the year.

Headline inflation accelerated to 8% last month, its highest level since the late 1990s, though lower than the rate in Colombia, Chile and Brazil. Peru is targeting 2% inflation, plus or minus one percentage point.

Ángel Misayauri, a farmer leader in central Peru who led the protests last month, said in an interview that the government will not be able to purchase enough fertilizer before the key planting season in July, which will mean lower yields later in the year. the year, which is likely to push prices even higher.

political turmoil

In March, leftist President Pedro Castillo survived a second attempt at a political motion in Congress, and the central bank also needs to assess whether the political turmoil is having a significant impact on the economy.

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According to a forecast by the International Monetary Fund, the Peruvian economy will grow 3% this year, faster than Brazil, Chile and Mexico, although slower than Colombia.

The central bank is also evaluating the impact of the government’s decision last month to raise the minimum wage by 10% to help Peruvians affected by rising prices, as well as a reduction in fuel taxes.

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Peru Central Bank Raises Interest Rates to Highest Since 2009

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