Peru Central Bank Holds Rate Steady as Inflation Seen Temporary; Moody's Raises Growth View

Peru's central bank is signaling it will keep its benchmark interest rate unchanged, viewing the recent uptick in inflation as a temporary shock rather than a persistent trend. Carlos Montoro, the bank's monetary policy chief, said on Thursday that inflation expectations for the coming years remain firmly anchored around the midpoint of the official 1% to 3% target range, giving policymakers room to manage price pressures without resorting to tighter borrowing costs.

"Economic agents today expect inflation to be around the center of the target range, at about 2% to 2.5%," Montoro said. "Inflation expectations remain anchored. This gives the central bank breathing room to control inflation without having to raise the interest rate."

Peru's benchmark rate currently stands at 4.25%, a level Montoro noted is below those of its regional peers. He attributed the central bank's ability to keep inflation in check to its credibility and timely policy responses.

Official data from the national statistics agency INEI shows monthly consumer prices rose 0.29% in July, following a 0.23% increase in June. Annual inflation accelerated to 4.07% in the 12 months through July, up from 4.01% in June, keeping it above the central bank's target band. Despite this, Montoro expects inflation to ease back to the middle of the target range by early next year.

Supporting that outlook, Moody's announced on Thursday that it plans to raise its estimate for Peru's economic growth this year to 3.5% from a previous 3.0%. Renzo Merino, vice president of Moody's sovereign risk group, said the revised forecast will be published in the ratings agency's September report, citing the country's macroeconomic strength despite the impact of the El Niño climate phenomenon.

The improved growth projection offers some reassurance to policymakers as they balance still-elevated inflation with the need to support economic activity. President Keiko Fujimori, who took office in late July, has sought to calm markets by retaining Julio Velarde as central bank chief, preserving a key pillar of Peru's inflation-fighting credibility.