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Peru maintains rate at 0.25% amid electoral turbulence

(Bloomberg) – Peru’s central bank on Thursday kept its key interest rate at an all-time low, while uncertainty about the results of Sunday’s controversial presidential elections increased.

The bank maintained its benchmark rate at 0.25% for the fourteenth consecutive month, fulfilling its promise to provide liquidity to an economy that has been hit hard by the pandemic.

The decision comes when the leftist candidate, Pedro Castillo, leads the second round of the June 7 elections against Keiko Fujimori by 50.2% to 49.8%, less than 70,000 votes, with 99% of the votes counted. Fujimori, a former congresswoman facing money laundering charges, is questioning the results and requested a recount of votes in key districts.

“The board considers it appropriate to maintain a strongly expansionary monetary stance while the negative effects of the pandemic on inflation and its determinants persist,” the bank said in its statement. “The financial markets showed high volatility in a context of electoral uncertainty and the bank’s actions were aimed at mitigating these volatilities.”

The decision was the one envisioned by the five economists surveyed by Bloomberg.

In recent weeks, the rise of Castillo, a 51-year-old former school teacher and union organizer for the Marxist party Peru Libre, has rocked the country’s markets amid fears that it will disrupt the Peruvian economic model.

News of its advantage sent Peru’s bonds and currency plummeting before it calmed investors by ruling out radical measures such as expropriations and price and currency controls. Castillo also promised to engage in talks with business leaders once elected.

What Bloomberg Economics Says

“Low and stable core inflation through May limits concerns about the printing of higher headlines, and together with evidence of recovery in economic growth, and the loss of momentum in domestic demand, support the outlook.”

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– Felipe Hernández, Latin American economist

Peru last changed its interest rate in April 2020, when it lowered it by a full percentage point, giving the Andean nation the lowest benchmark rate among all the major Latin American economies.

Original Note: Peru Holds Key Interest Rate Near Zero Amid Election Turmoil (1)

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