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Peru's central bank joins LatAm peers in cutting rates

Peru's central bank loosened its policy stance by announcing a rate cut of 25 basis points, joining a number of its counterparts across Latin America that have reduced borrowing costs this year.

However, the lowering of the reference rate to 2.50% from 2.75% "does not necessarily imply additional reductions in the policy rate," Banco Central de Reserva del Perú said in a statement.

The decision, which marks the central bank's first rate cut in more than a year, was generally expected by the market, although some analysts had foreseen the bank holding the rate steady.

The reduction takes into account annual inflation remaining within the bank's target range in July. Additionally, primary industries in the Peruvian economy "show a weak performance as a result of temporary supply shocks, while non-primary industries show slowing growth momentum," the bank said.

It also pointed to a slowdown in public investment and persisting global growth risks, adding that recent escalation in trade tensions has intensified international financial volatility.

"Year-on-year inflation is expected to remain within the target range close to 2.0% over the forecast horizon, with a downside bias due to the possibility of a lower-than-expected increase in domestic demand," the central bank said.

The bank also decided to reduce the interest rates on its off-auction credit and deposit operations in the local currency, with the overnight deposit rate falling to 1.25% per year.