Peru: Central Bank cuts reference interest rate by 25 basis points to 3.25% in surprise move
January 15, 2015
The Central Bank decided to cut the reference rate from 3.50% to 3.25% at its 15 January monetary policy meeting. The majority of market analysts had expected the rate to be left unchanged. The reference rate was cut in an attempt to counter an ongoing loss of momentum in the economy.
As in previous meetings, the Central Bank stated that the Peruvian economy is still performing below potential. Newly-released data and forward-looking indicators show continued weakness in the economy. Data for November show that economic activity was much weaker than expected.
In terms of price developments, annual inflation was steady at 3.2% in December, above the bank’s target range of 1.0%–3.0%. However, monetary authorities see inflation converging toward 2.0% in 2015.
The Bank also reduced the average reserve requirement ratio for local currency deposits from 9.5% to 9.0%. The Bank has been slowly lowering the requirement during the past months. The reductions have been implemented to support the expansion of credit in local currency with the aim of reducing the degree of dollarization in domestic financial markets and to boost economic activity amid declining mineral exports.
Despite the decision to reduce the reference rate, the Bank signaled that the move does not imply the start of a series of rate cuts. The next monetary policy meeting is scheduled for 12 February.
Author: Carl Kelly, Economist