Bloomberg reported that Peru's central bank will probably keep its benchmark interest rate unchanged for an eighth month as the highest inflation rate since 2009 prevents policy makers from doing more to shore up economic growth.
According to all 13 economists surveyed by Bloomberg, the bank will keep the overnight rate at 4.25%. The seven member board, led by bank president Mr Julio Velarde, will announce its decision at about 6 PM local time.
Mr Pedro Tuesta, an economist at 4Cast Inc, said that Peru's economy expanded at the slowest pace in 21 months in October 2011 as the European debt crisis weighed on commodity prices and worldwide demand. The central bank is likely to keep rates on hold as it waits to see if stagnation in Europe pushes growth in Peru's commodity dependent economy still lower.
He added that "Policy makers must be concerned about growing inflation expectations, but they seem optimistic about a slowdown in prices in 2012. They won't have space to cut unless there is an implosion in Europe."
The central bank last month repeated its view that 2012 economic growth and domestic demand will remain below potential while attributing the pace of inflation to temporary supply factors.
Mr Velarde said that gross domestic product will rise 5.5% in 2012, down from an estimate of 5.7% three months earlier, on slower exports and private investment. GDP probably rose 6.8% in 2011, exceeding the economy's potential growth rate of about 6.5%.
Mr Roberto Melzi, a strategist at Barclays Capital Inc, said that social unrest remains a threat to growth after protests led Newmont Mining Corporation to suspend its Minas Conga gold mine expansion in November 2011.
He added that "In a scenario in which you have three other Congas and private investment collapses or decelerates further, then you would see the central bank stepping in and cutting rates in 2012."
Peru's annual inflation rate rose to 4.74% in December 2011 as food prices increased on tighter domestic supply. Inflation expectations for 2012 climbed for a third straight month in December 2011 to 3% as compared with 2.8% in November 2011.
Lima based BBVA Banco Continental said that inflation will ease starting in the second quarter as food prices stabilize and activity decelerates.
(Sourced from www.bloomberg.net)
