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Petroperu’s USD bonds surged after the Peruvian government announced a plan to temporarily assume the company’s debt payments for the latter half of the year. This decision came after prolonged uncertainty regarding the government’s approach to Petroperu’s liquidity problems, which were exacerbated by the overdue and over-budget construction of the Talara refinery.
Bloomberg analysts predict that Peru’s central bank will reduce its benchmark interest rate to 5.25% due to tightening monetary conditions and slowing inflation, which recently dipped to 2.0%. The central bank is expected to keep options open for future adjustments based on incoming economic data.
Fitch has expressed concerns that Peru is unlikely to meet its revised fiscal deficit target of 2.8% of GDP for 2024, now forecasting a deficit of 3.4% of GDP. Despite expected increases in public revenues, Fitch does not anticipate the necessary spending cuts to achieve the fiscal target, highlighting potential further support to Petroperu as a risk.
In Peru’s capital, monthly inflation exceeded economist expectations last month, recording a 0.28% increase from the previous month. Annually, inflation slowed to 2.03%, remaining within the central bank’s target range of 1% to 3%. The central bank cut interest rates from a high of 7.7% last year to 5.5% last month. The government continues to press for faster rate cuts to stimulate economic growth.
Peru’s Finance Minister Arista suggested the economy might have grown over 4.0% in July, potentially reversing June’s sharp slowdown and supporting 2024’s growth forecast of 3.1%. However, he noted, with some optimism, that growth could reach 3.7%-4.0% this year, driven by mining, fishing, and agriculture. Arista also mentioned that the fiscal deficit, currently at 4.0% of GDP for the 12 months ending in July, would be reduced to 2.7%-2.8% by year-end.
Goldman Sachs noted a slowdown in Peru’s economic momentum after initial strong growth, predicting more moderate expansion for the remainder of the year. Despite earlier optimism, the economy grew just 0.2% in June, underperforming expectations significantly.
Peru’s economic growth stalled in June, increasing only 0.21% from the previous year, after months of exceeding expectations with growth rates above 5% in April and June. The slowdown was attributed to downturns in mining, construction, and agriculture.
Peru issued its first hard-currency bonds in three years, raising USD 3 bln through a dual-tranche deal. The country sol USD 1.25 bln in dollar-denominated bonds maturing in 2035 and USD 1.75 bln due in 2054, with spreads of 140 and 165 bps over comparable U.S. Treasuries, respectively. Earlier, Peru proposed a tender offer to exchange or buy back certain bonds. While it has previously issued local-currency international bonds in early 2023 and this year, its last issuance of hard-currency debt was in late 2021.
Peru’s top prosecutor’s office has filed a constitutional complaint against President Dina Boluarte, accusing her of homicide related to the deaths of 44 people during early protests in her presidency. These protests saw alleged severe human rights violations by police and armed forces, including evidence of law enforcement firing at civilians.
Peru’s President Boluarte expressed optimism about exceeding economic growth forecasts and announced plans to advance the 2026 elections to next April. She anticipates growth above the central bank’s 3.1% projection after a 0.6% contraction last year. Boluarte also detailed a USD 3.2 bln infrastructure initiative for 2024, including creating a new ministry to enhance investment.
Peru’s Minister of Economy and Finance Arista stated that Peru’s GDP growth in 2024 is expected to exceed the official estimate of 3.1%. In a press conference, he reiterated his criticism of the Central Reserve Bank of Peru for maintaining high interest rates, which he views as the main obstacle to the country’s economic recovery.
Peru’s core inflation remains high, influenced significantly by an 8% increase in water bills in February. Despite this, the Peruvian economy is expected to grow by 5% YoY in May and 4% in Q2 2024. The central bank maintained its interest rate at 5.75% for the second consecutive month due to ongoing concerns about core inflation, currently at 3.1%, with headline inflation at 2.29%.
Peru held its interest rate at 5.75% for the second consecutive month amid concerns over persistent core inflation despite rapid economic growth. Core inflation remained at 3.1% in June, aligning closely with overall inflation at 2.29%. Economic activity surged by 5.3% YoY in April, marking the fastest growth over two years, reducing governmental pressure on the central bank for quicker rate cuts.
Peru’s Fiscal Council has expressed concerns regarding the government’s failure to adhere to the fiscal deficit rules in 2023. The net debt dynamics, particularly the decline in public sector financial assets from a high in 2015, exacerbated the situation, reflecting a continued downtrend in fiscal management.
The Inter-American Development Bank (IADB) has approved a USD 600 mln loan to enhance Peru’s fiscal management and sustainability as part of the country’s economic recovery efforts.
Peru’s government announced successful liability management operations involving domestic and foreign bonds. A total of USD 1.2 bln in old foreign currency bonds and EUR 0.3 bln were exchanged for cash. Domestically, PEN 8.2 bln in old bonds were exchanged for new 2039 bonds, and another PEN 7.1 bln for cash, leading to an improvement in the country’s debt profile and a net reduction in public debt to USD 86.9 bln or 31.1% of GDP.
According to Scotiabank, Peru faces significant fiscal challenges, with a fiscal deficit of 3.9% in May, exceeding the government’s target. Scotiabank analysts express concern that Peru is unlikely to meet its revised fiscal deficit targets for 2024 and 2025, potentially risking a downgrade in its credit rating due to non-compliance with its fiscal rule.
Peru’s central bank has revised its GDP growth forecast for 2024 to 3.1% from 3.0%, citing an upward bias. Inflation is projected at 2.2% by the end of 2024 and 2% by the end of 2025, with the fiscal deficit expected to be 2.8% of GDP, slightly above the government’s 2.5% target.
The Peruvian government launched two debt offerings on Tuesday. The first is an exchange or cash purchase for existing local sovereign bonds maturing between 2024 and 2029, totaling PEN 40.7 bln. The second is a cash purchase for USD- and EUR-denominated global bonds maturing from 2025 to 2030, totaling USD 6.4 bln and EUR 2.1 bln. Following a June 17 resolution, these efforts aim to finance repurchases and partially cover 2024 financial needs up to USD 3.0 bln, supporting an increase in local-currency debt, which constitutes 48.6% of total liabilities.
Peru’s economic activity rose by 5.28% YoY in April, surpassing the forecasts of around 4% set by both the finance ministry and central bank, indicating a strong recovery trajectory for the country. Despite persistent core inflation concerns, the central bank held the benchmark interest rate steady at 5.75%, under pressure to boost economic growth further.
Peru’s Central Bank President Julio Velarde anticipates May’s inflation rate to be close to 0%, suggesting limited scope for rate cuts to significantly boost the economy due to low potential GDP growth, estimated at 2.5%. The central bank projects a growth rate of around 3% for 2024.
Peruvian President Dina Boluarte’s approval rating has plummeted to 5%, the lowest since her tenure began in late 2022, driven by ongoing political turmoil and corruption scandals. The disapproval extends to the nation’s Congress, which has an approval rating of only 6%. The political instability is casting a shadow over the economic outlook and governance in Peru.
Julio Velarde, President of the Peruvian Central Bank, indicated that Peru’s benchmark interest rate could be reduced by 100 bps below the Fed’s rate. Currently, the rate stands at 5.75%, with inflation expected to settle between 2%-2.2% by the end of 2024. The GDP growth forecast remains at 3% for 2024. Separately, Peruvian President Dina Boluarte aims to attract over USD 5 bln in mining investments this year and targets a significant increase in copper production.
Following the 2024 Article IV consultation, the IMF noted that Peru is recovering from past economic shocks, projecting Peru’s GDP growth at 2.5% for 2024, which is lower than the local forecasts by Peru’s central bank and fiscal authorities. The IMF anticipates inflation will decline towards the midpoint target, aided by a cautious monetary easing cycle. The fund also expects the current account deficit to stabilize at around 1.5% of GDP in the medium term and suggested enhancements to Peru’s fiscal framework to strengthen economic resilience.
Peru decided not to renew its Flexible Credit Line (FCL) arrangement with the IMF, a tool designed for crisis prevention. This decision reflects the country’s confidence in its economic buffers and broadly balanced risks. The FCL was valued at USD 4.5 bln in 2022. Although Peru anticipates a GDP growth of 2.5% in 2024, the IMF has highlighted the need for urgent reforms to boost potential growth amid continuing political uncertainty.
The EMBIG Peru saw a slight decrease, settling at 156 between April 17 and 24. During the same period, the EMBIG for Latin America also experienced a decline, falling to 329. Peru’s central bank highlighted that the yield on Peru’s 10-year sovereign bonds dropped 23 bps, positioning it among the lowest in the region. The index serves as an indicator for investors, reflecting the business risks within a country; a lower index suggests a more attractive investment environment.
Fitch affirmed Peru’s rating at BBB, with a Negative Outlook due to persistent political uncertainties which dampen private investment and economic growth. The agency noted the potential for improvement if pending reforms enhance political stability. Conversely, a new bill allowing further pension withdrawals could pressure financial markets and exacerbate fiscal challenges. Fitch forecasts growth at 2%-2.5% in 2024. The central bank lowered its key interest rate by 175 bps to 6.0% following a rapid decrease in inflation.
Peru’s central bank projects a 3% economic growth rate in Q2 and Q3 2024. Economic activity expanded by 1.4% in January and 2.9% in February, indicating a 2% growth between those months. The bank forecasts growth rates of 2.8% for primary GDP and 3.1% for non-primary GDP in 2024, with higher projections for 2025. Private investment, which declined by 7.2% in 2023, is expected to grow by 2.3% this year.
Peru’s congress is set to debate a bill for another withdrawal from the pension fund, AFP, despite financial concerns. Finance Minister Arista warned that the PEN 29.5 bln withdrawal could harm pension fund liquidity and elevate interest rates. Still, Parliamentary consensus seems to favor the initiative, risking retirement savings and financial stability.
Peru’s central bank adjusted its 12-month inflation forecast downward to 2.56% from 2.65%, closer to its target. Despite the recent uptick in March’s consumer price index, the bank is optimistic about achieving economic growth of 2.5% to 2.7% in 2024, revising previous estimates upwards.
