By Isabel Woodford and Marion Giraldo
(Reuters) -Peru’s economy and inflation have likely been hit by the ongoing social upheaval that has rocked the Andean nation since December, early indications suggest, the head of the central bank’s economic studies unit, Adrian Armas, said on Friday.
Protests over the removal and arrest of former President Pedro Castillo in December have snarled Peru, with clashes between demonstrators and security forces leaving dozens dead. It is the worst violence in Peru in two decades and threatens to destabilize one of region’s most reliable economies.
“As we know, recent events are affecting infrastructure on the one hand and transportation on the other, which has an impact on prices because the supply chain is being affected,” Armas said.
The protests’ final impact would depend on how long they continued, he said, but warned that if they persisted, it would be “very difficult” for companies to recoup their losses this year.
Armas’ comments come a day after the central bank maintained its benchmark interest rate at 7.75%, making it the first time since the second half of 2021 that the bank did not hike its rate. Inflation surged well ahead of the bank’s target range to 8.66% in January, near the quarter-century high it reached last year.
On Thursday, the International Monetary Fund called inflation Peru’s most immediate policy challenge, in a statement following a staff visit to the country.
Armas highlighted that inflation was seen to be on a “downward” trend, with January’s figures slightly better than expected.
A presentation accompanying the press conference by Armas underscored that Thursday’s decision to keep rates on hold “does not necessarily imply the end of the cycle of interest rate increases.” Future adjustments in the key rate will depend on new inflation, including the macroeconomic effects of the social unrest, said the presentation.
The bank now forecasts inflation for early 2024 to reach 4.62%, above the previous forecast of 4.3%.
(Reporting by Isabel Woodford and Marion Giraldo; Writing by Anthony Esposito; Editing by Brendan O’Boyle and Leslie Adler)