Peru Holds Interest Rate at 4.25% as Gas Crisis Fuels Inflation

Peru’s central bank kept its benchmark rate unchanged at 4.25% on Thursday, opting for caution as a convergence of supply shocks pushes inflation above the midpoint of its 1%–3% target range for the first time in over a year. Annual consumer price growth accelerated to 2.21% in February, its fastest since 2024, and analysts expect the March reading to be sharply worse after a natural gas crisis sent fuel and food prices surging across Lima and beyond. This is part of The Rio Times’ comprehensive coverage of Latin American financial markets and economic developments.

Peru Interest Rate Decision Reflects Triple Shock

The hold — unanimous among the nine analysts surveyed by Bloomberg — came as the BCRP confronts three simultaneous pressures. Adverse weather has disrupted agricultural supply chains, pushing food prices higher. Rising global oil prices, amplified by the intensifying Middle East conflict, have increased transport and input costs. And most acutely, a March 1 pipeline rupture at the Camisea gas field in Cusco — the backbone of Peru’s energy infrastructure — slashed natural gas supply from 780 million cubic feet per day to just 70 million, or roughly 9% of normal capacity.

The Camisea disruption forced the government to declare an energy emergency, ration gas for taxis and private vehicles, activate expensive diesel-fired reserve power plants, and order remote schooling across Lima and Callao. Wholesale fuel prices jumped as much as 28% in a single week. The Chamber of Commerce of Lima warned the gas rationing would generate inflationary pressure through March and potentially into April, as higher transport and distribution costs ripple through supply chains. Repair work on the pipeline reached 52% as of midweek, with full restoration expected around March 14, though industry groups warned the broader fuel crisis — aggravated by the near-collapse of state refiner Petroperú — could persist longer.

Inflation May Breach Target Ceiling

Some economists now expect annual inflation to surpass 3% in coming months, which would mark the first breach of the BCRP’s upper target band in two years and effectively end any remaining speculation about rate cuts in 2026. Peru’s inflation rate remains among the lowest in emerging markets, but the speed of the acceleration — from 1.4% in November to 2.21% in February — has caught markets off guard. The BCRP noted in its statement that 12-month inflation expectations edged up to 2.1% and cautioned that global risks have risen due to the Middle East conflict, reflected in greater financial market volatility.

Election Adds Political Uncertainty

The monetary policy decision lands in the middle of a chaotic presidential campaign. Peruvians vote in April to choose their tenth head of state since 2016 from a field of more than 30 candidates. Former Lima mayor Rafael López-Aliaga leads polls with just 11.2%, followed by three-time runner-up Keiko Fujimori at 9.2%. No candidate is expected to win outright, making a June runoff virtually certain. As The Rio Times has reported, the chronic political instability has historically weighed on investment confidence without derailing the BCRP’s orthodox monetary management — a track record the central bank is now working to protect.

For the BCRP, the calculus is uncomfortable but clear: the economy is growing near potential, inflation expectations remain anchored inside the target band, and the supply shocks driving prices higher are largely temporary. Cutting rates would risk unanchoring expectations at the worst possible moment. Hiking would punish an economy still absorbing the gas crisis. Holding steady buys time — but if the Camisea repairs drag on or oil prices spike further, the central bank may find its options narrowing fast.

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