Thursday, August 7, 2008

Peru Central Bank Raises Interest Rates

Peru's central bank raised its overnight rate for the sixth time in less than a year in a bid to slow the fastest inflation since 1998. The bank raised the benchmark rate a quarter-point to 6.25 percent as policy makers seek to bring inflation into their target range of 1-to-3 percent.

Peru's annual inflation rate has more than doubled in less than 12 months and is now almost twice the central bank's target. Central bank President Julio Velarde joins monetary policy makers across Latin America who've pushed rates up in the last year in a bid to tame prices and meet inflation targets.

Monthly inflation of 0.56 percent last month raised Peru's annual rate to 5.8 percent. Since mid-2006, prices for crude oil, wheat, corn and soybeans have gained on global markets, helping fan inflation in Peru, a net importer of the commodities.

Food prices have risen 9.7 percent in the past 12 months. Core inflation was 4.7 percent in the year through July, wile overall consumer prices are up 4.1 percent, the highest rate in the January-through-July period since the 6 percent rise recorded in the first seven months of 1997.

Surging mining and oil tax revenue will enable the government to triple public spending in provinces to 18 billion soles ($6.4 billion) this year from 2005, creating jobs and boosting wages, President Alan Garcia said July 28.

After expanding 9 percent in 2007, Peru's economy grew 10.2 percent in the first half of 2008, according to the Finance Ministry. Peru's gross domestic product last expanded at a faster pace since the second quarter of 1995, when GDP rose 11 percent from the same quarter a year earlier.

The economy will grow 8 percent this year on surging manufacturing, construction and retail sales, according to the central bank. Consumer demand grew 8 percent in the first half, while private investment rose 19 percent.

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