Monetary policy day: Peru and Uruguay raise interest rates

Peru’s central bank raised its benchmark interest rate to 2.0% from 1.5%, its fourth consecutive advance, as inflation accelerates and growth expectations improve, the agency said on Thursday.

The 12-month inflation rate increased to 5.83% in October from 5.23% in September, being above the target range (which is 1 to 3%) due to factors such as the increase in international food and fuel prices, as well as and the exchange rate, the central bank said in a statement.

The Central Bank of Peru stated in its statement that it expects inflation to return to its target range in the second half of next year.

World economic activity, although at a slower pace, is recovering and this process is expected to continue as vaccination and significant fiscal stimulus programs in developed countries progress.

The president of the central bank, Julio Velarde, said earlier that if the growth rate is maintained in August, when it advanced by 11.8%, Peru’s economy could grow 13.2% throughout the year, higher than the last projection of 11.9%. hundred.

Uruguay joined the wave

In addition to Peru, the Central Bank of Uruguay also raised its interest rate 50 basis points to 5.75%, seeking to deal with rising inflation.

Several countries in the region have been raising rates after dropping them to record lows in response to the pandemic. The central banks of Brazil, Chile and Colombia did so during October.

The price increase in Uruguay was 7.89% per year at the end of October.

“The Central Bank’s Monetary Policy Committee understands that it is necessary to strengthen the process of reducing inflation expectations, in a recovery scenario and, for this, it deems appropriate to set the monetary policy rate at 5.75%,” said the entity. through a statement.

Citi analysts warn that global inflation could continue to rise as tensions over “supply in China spill over into global supply chains.”

Inflation in the United States and Europe is at 13-year highs. Inflation in Germany, which has strong ties to the Asian giant, has already reached a peak not seen in 29 years.