Peru Maintains Key Interest Rate Amid Trade War Concerns

Peru’s central bank held its interest rate at 4.75% to assess inflation risks from global trade wars. While local inflation trends are positive, concerns persist regarding the impact of U.S. trade policies on exports. However, inflation is expected to decrease to 1% this month, with a projected economic growth rate of 3% for the year.

Peru’s central bank opted to maintain its key interest rate at 4.75% amidst rising concerns regarding the inflationary effects of global trade wars. This decision aligned with the expectations of seven out of eleven economists surveyed by Bloomberg, while four had anticipated a reduction to 4.5%. The bank acknowledged improving local inflation trends but noted increased global economic risks due to uncertainties surrounding trade restrictions.

The bank indicated that financial markets are experiencing significant volatility. Despite possessing one of the lowest inflation rates among emerging markets and enjoying robust economic growth outpacing its regional counterparts, Peruvian authorities are becoming increasingly aware of the potential negative consequences of U.S. trade policies under President Trump, particularly on metal and fruit exports.

As of February, Peru’s annual inflation decreased to 1.5%, with projections to drop further to approximately 1% this month. The central bank expects economic growth of 3% for the year. In response to potential tariffs on copper, Energy and Mines Minister Jorge Montero announced a delegation will be formed to negotiate with U.S. officials. Furthermore, Agriculture Minister Angel Manero expressed confidence that U.S. tariffs are unlikely to target high-value crops such as blueberries or grapes, although steps will be taken to address this through the World Trade Organization if necessary.

In summary, Peru’s decision to maintain its key interest rate reflects careful consideration of the potential inflationary impacts stemming from global trade tensions. While the country enjoys low inflation and economic growth, officials are prepared to address challenges posed by foreign trade policies. Ongoing assessments will be crucial as Peru navigates these economic uncertainties.

Original Source: financialpost.com