Peru hit by El Niño... Central bank raises interest rates for the first time in four years
Inflation caused by El Nino and the Middle East war and rising oil prices are the background to the interest rate hike.
Quick Look
- Peru raised its benchmark interest rate by 0.25 percentage points from 4.25% to 4.5% for the first time in about four years in response to inflation caused by El Niño and rising oil prices due to the Middle East war.
- Consumer prices in October rose 5.25% compared to the same period last year, and corn and bonito prices rose 45.3% and 26.9%, respectively.
AI-generated summary
Why It Matters
Peru has issued a state of emergency several times in preparation for drought and heavy rain caused by El Niño, and on the 4th, a 60-day state of emergency was declared in 1,380 locations across the country. The annual inflation rate has already exceeded the central bank's target for eight months.
State of emergency declared due to El Nino... Inflation, including prices of agricultural and marine products, soars
(Mexico City = Yonhap News) Correspondent Gwang-ho Song = With Peru being hit hard by El Nino, the central bank in charge of monetary policy raised the base interest rate for the first time in about four years.
According to local daily La Publica on the 13th (local time), the central bank held a monetary policy meeting the afternoon before and raised the base interest rate by 0.25 percentage points (p) from 4.25% to 4.5%.
Although the central bank has lowered interest rates, it has been 3 years and 10 months since January 2023 that it has raised them.
The increase in the base interest rate was already predicted by the market. Of the 13 analysts surveyed by Bloomberg, 11 predicted an increase.
Inflation caused by El Nino is the background to the interest rate increase. Peru has issued several states of emergency in preparation for drought and heavy rains, including declaring a 60-day state of emergency in 1,380 locations across the country on the 4th to prepare for heavy rains triggered by El Nino.
In particular, prices of agricultural and marine products jumped significantly due to the worsening El Niño phenomenon, with corn prices rising 45.3% compared to the previous month in October alone, and skipjack tuna rising 26.9%. In addition, the increase in oil prices due to the war in the Middle East also played a role in affecting prices.
According to the National Statistics Office, consumer prices in October rose 5.25% compared to the same period last year. This is the highest increase since August 2023 (5.58%). The annual inflation rate has already exceeded the central bank's target for eight months.
However, the Monetary Policy Committee clarified that this decision to increase does not mean the start of a new interest rate increase cycle. The next monetary policy meeting to decide the benchmark interest rate is scheduled for December 10.
What to Watch
AI outlook — possibilities, not facts
A decision on whether to further raise the base interest rate will be made at the next monetary policy meeting on December 10.
Possible · Within weeks
Open Questions
- Are there any plans to increase the base interest rate further?
- Measures to stabilize prices of agricultural and marine products during the state of emergency
- The central bank's inflation target specific figures
