Peru: Central Bank cuts policy interest rate at its first 2018 meeting
January 12, 2018
At its 11 January monetary policy meeting, the Central Bank of Peru (BCRP) decided to cut the policy interest rate from 3.25% to 3.00%, following four cuts in 2017, most recently on 9 November. The Bank’s decision was motivated by declining inflation and inflation expectations, below-potential economic growth and weakening business confidence.
Inflation dropped further from 1.5% in November to 1.4% in December, coming in below the mid-point of the Central Bank’s target range of 1.0% to 3.0% for the second consecutive month. A reversion of the supply shocks recorded in Q3 was behind the slowdown. Inflation not counting foodstuff and energy also moderated, as did inflation expectations for the next 12 months.
Moreover, economic activity continued to expand below potential in Q3, as public investment expanded at a more moderate pace than the Bank had expected. Additionally, business sentiment weakened significantly in December, although it remained in optimistic territory. Consequently, the Bank expects inflation to moderate further early this year, and converge to its 2.0% target afterwards.
The Bank’s statement was devoid of strong forward guidance. The BCRP expressed, however, its readiness to modify its monetary policy stance if new information on inflation were to make it necessary. The next monetary policy meeting will be held on 8 February.
Peru Interest Rate Forecast
FocusEconomics Consensus Forecast panelists see the monetary policy rate ending 2018 at 3.43%. For 2019, the panel projects a rate of 3.78% at the end of the year.