Bloomberg News

Benavides Says Peru Central Bank Can Pause on Falling Prices

June 08, 2011

(Updates to add bond prices in sixth paragraph.)

June 8 (Bloomberg) -- Peru’s falling consumer prices and slower credit growth means the central bank can refrain from raising interest rates again when it meets tomorrow, Finance Minister Ismael Benavides said.

“It’s the central bank’s decision but inflation is negative and there’s nothing on the horizon in terms of imported inflation,” Benavides said in an interview in Lima yesterday. “There’s less demand for credit, which helps ease inflation.”

Consumer prices fell for the first time in seven months in May and after inflation reached a three-year high in March as food costs declined. Prices fell 0.02 percent from April and the annual inflation rate slowed to 3.07 percent from 3.34 percent the previous month. An easing of government spending growth and increases in the benchmark rate have helped tame inflation, Benavides said.

The central bank raised its benchmark rate to 4.25 percent from 4 percent last month, its 10th increase in 13 meetings. Bank policy makers will raise the rate by a quarter-point to 4.50 percent tomorrow, according to 11 of 15 of analysts in a Bloomberg survey. Four economists expect the bank not to move.

Barclays Capital Inc. said in a June 6 e-mailed report to investors that the central bank will keep rates unchanged and will maintain the pause until the economic outlook is clearer in the wake of Ollanta Humala’s victory in the country’s presidential elections.

The yield on the nation’s benchmark 7.84 percent sol- denominated bond due August 2020 was little changed at 6.69 percent at 10:35 a.m. New York time, according to prices compiled by Bloomberg.

Peru’s sol strengthened 0.1 percent to 2.7845 per U.S. dollar from 2.7865 yesterday.

--Editors: Richard Jarvie, Bill Faries

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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