Chile and Peru Cut Rates to Revive Growth

Chile and Peru have cut borrowing costs to the lowest levels since 2011 as policy makers in both Latin American countries seek to stimulate growth in economies expanding at the slowest pace in at least four years.

Chilean policy makers, led by Banco Central de Chile president Rodrigo Vergara, cut the benchmark rate by a quarter point to 3.25%, while Peru’s policy makers, led by Banco Central de Reserva del Peru president Julio Velarde, also cut by a quarter point to 3.50%.

Both countries posted the slowest economic growth for Q214 since late 2009, as falling copper prices halted an investment boom in the mining industry. Weaker growth has not dampened inflation in Chile, which has accelerated in eight of the past 10 months, while on Peru it has increased and in four of the past eight months in Peru. Chile has cut rates seven times in the last 12 months, while Peru has carried out three reductions in the same period.

Banco Central de Chile recently reduced its 2014 growth forecast for the fourth consecutive quarter, citing weaker-than-expected domestic demand, but expects growth to revive in 2015 and inflation to slow.

Chile’s economy grew 0.9% in July from a year earlier, the slowest pace since the aftermath of an earthquake that hit the country in February 2010. Gross domestic product (GDP) expanded 1.9% percent in Q2 from the year before, down from 3.8% in the same quarter in 2013.

Banco Central de Reserva del Peru last month lowered Peru’s 2014 growth forecast after a slump in copper exports led private investment to fall in Q2 for the first time since 2009. Consumer prices unexpectedly fell in August, bringing the annual inflation rate back into the central bank’s target range for the first time this year.

GDP rose 1.7% in Q2 from a year earlier, compared with average annual growth of 6.3% over the last decade, as exports fell to their lowest level in four years. The central bank last month trimmed its 2014 growth forecast to 4% from 4.4% in July.


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