(Updates market prices in 19th, 20th paragraphs.)
Jan. 12 (Bloomberg) -- Peru’s central bank will probably keep its benchmark interest rate unchanged for an eighth month today as the highest inflation rate since 2009 prevents policy makers from doing more to shore up economic growth.
The bank will keep the overnight rate at 4.25 percent, according to all 13 economists surveyed by Bloomberg. The seven- member board, led by bank President Julio Velarde, will announce its decision at about 6 p.m. local time.
Peru’s economy expanded at the slowest pace in 21 months in October as the European debt crisis weighed on commodity prices and worldwide demand. The central bank is likely to keep rates on hold as it waits to see if stagnation in Europe pushes growth in Peru’s commodity-dependent economy still lower, said Pedro Tuesta, an economist at 4Cast Inc.
“Policy makers must be concerned about growing inflation expectations, but they seem optimistic about a slowdown in prices this year,” Tuesta said in a phone interview from Washington. “They won’t have space to cut unless there is an implosion in Europe.”
The central bank last month repeated its view that 2012 economic growth and domestic demand will remain below potential while attributing the pace of inflation to “temporary supply factors.”
Gross domestic product will rise 5.5 percent in 2012, Velarde said Dec. 16, down from an estimate of 5.7 percent three months earlier, on slower exports and private investment. GDP probably rose 6.8 percent in 2011, exceeding the economy’s potential growth rate of about 6.5 percent, he said.
Social unrest remains a threat to growth after protests led Newmont Mining Corp. to suspend its Minas Conga gold mine expansion in November, said Roberto Melzi, a strategist at Barclays Capital Inc.
“In a scenario in which you have three other Congas and private investment collapses or decelerates further, then you would see the central bank stepping in” and cutting rates this year, Melzi said in a phone interview from New York.
Peru posted its first trade deficit in 34 months in November on weaker global demand for its metals and energy exports.
The Andean country is the world’s third-largest exporter of copper and zinc, sixth in gold and a leading exporter of silver. Metals led by copper account for two thirds of its exports. Neighboring Chile, the world’s largest copper exporter, is also expected to leave interest rates unchanged today, according to the median estimate of 20 analysts surveyed by Bloomberg.
Copper prices fell 23 percent last year as Europe’s fiscal woes threatened global growth and demand waned in China, the world’s top metals buyer.
South America’s sixth-largest economy expanded 5.1 percent in October from a year earlier, the slowest pace since January 2010. The national statistics agency will disclose November’s growth rate Jan. 16.
Peru’s annual inflation rate rose to 4.74 percent in December as food prices increased on tighter domestic supply.
Inflation expectations for 2012 climbed for a third straight month in December to 3 percent, compared with 2.8 percent in November, according to a central bank survey published Jan. 9.
The central bank targets annual inflation of 1 percent to 3 percent.
Prices, Rate Horizon
Inflation will ease starting in the second quarter as food prices stabilize and activity decelerates, Lima-based BBVA Banco Continental said in a Jan. 5 note to clients.
Companies were less optimistic about the economy and domestic demand in December compared with November, the central bank survey showed. Consumer confidence jumped to a record.
The central bank’s monetary stance is neutral and what happens in the world economy will determine whether the next move is a rate increase or rate reduction, Velarde said at a Dec. 16 news conference.
The sol rose to 2.6910 per U.S. dollar Jan. 9, its strongest level since April 2008, as investors bet the economy will withstand the global slowdown. The currency strengthened 0.2 percent to 2.6883 per dollar at 10:29 a.m. in Lima.
The yield on Peru’s benchmark sol-denominated bond due August 2020 has fallen four basis points this month to 5.71 percent while the Lima General Index of stocks has gained 4.6 percent.
“Given the recent strength of private domestic demand and the likely reversal of the contraction in public sector demand this year,” the central bank will probably restart its tightening cycle this year, provided the world avoids recession, Morgan Stanley said in a Jan. 9 report.
--Editors: Robert Jameson, Jonathan Roeder
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