Velarde forecasts faster Peru inflation; rate hike is still an option

Velarde forecasts faster Peru inflation;  rate hike is still an option

(Bloomberg) — Peru’s central bank raised its inflation forecast for 2022 and 2023 without ruling out additional interest rate hikes depending on incoming data.

At a press conference in Lima on Friday, central bank president Julio Velarde said the bank had raised its inflation estimate for 2022 to 7.8% from a previous 6.4% and for 2023 to 3% from 2.5%.

Last week, the bank posted a smaller-than-expected increase, raising the key rate to a 20-year high of 6.75% after inflation moderated for the second month in a row. It was the 14th consecutive increase in a cycle that raised borrowing costs by 650 basis points. Consumer prices in August rose 8.4% from a year earlier, above the bank’s target of 1% to 3%.

When asked about further raises, Velarde said he didn’t know. He indicated that they had not ruled out not raising and it would depend on the data. He confirmed that the only thing that is certain is the bank’s commitment that inflation will return to the target range.

At the same time, the central bank lowered its GDP forecast for 2022 to 3% from 3.1%, and its forecast for 2023 to 3% from 3.2%.

At its current level, the benchmark interest rate is on neutral ground and is not tightening as much yet, Velarde said. At the same time, if inflation gets out of control, the adjustment will have to be much stronger and much more expensive, he concluded.

original note:

Peru’s Velarde Sees Faster Inflation, Keeps Rate Hikes on Table

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