Peru Cuts Key Interest Rate to Three-Year Low of 4.25%

Core Viewpoint - The Central Reserve Bank of Peru has cut interest rates to the lowest level since 2022, reducing the benchmark rate to 4.25% from 4.5% due to an unexpected drop in inflation [1][2]. Economic Indicators - Consumer prices in Peru rose by only 1.11% in August year-over-year, marking one of the slowest inflation rates among major emerging markets and nearing the lower end of the central bank's target range [3]. - Strong economic activity was reported, with a 4.5% expansion in June compared to the previous year, which may limit the potential for further rate cuts [4]. Central Bank's Position - The central bank indicated that the current interest rate is close to its estimated neutral level and forecasts inflation to be near the center of its target range by the end of the year [2]. - The key rate in Peru is now aligned with the lower end of the range set by the US Federal Reserve, which may create caution regarding further reductions in rates due to potential capital outflows [3].