Peru: Central Bank cuts reference interest rate to 3.50% as economic weakness persists and inflation moderates
September 11, 2014
The Central Bank decided to cut the reference rate by 25 basis points to 3.50% at its 11 September monetary policy meeting, in a move that was expected by a majority of market analysts. The reference rate has been cut twice in the three most recent meetings in an attempt to counter sluggish economic growth and moderating inflation.
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, mainly due to less dynamic investment and exports. However, unlike previous statements, the Central Bank did not say that the slowdown would be temporary.
In terms of price developments, annual inflation fell back into the bank’s target range of 1.0%–3.0% for the first time this year. Annual inflation decreased from 3.3% in July to 2.7% in August. Monetary authorities see inflation converging toward 2.0% in the medium- and long-term as supply shocks continue to moderate.
The Bank explained that the decision to cut the reference rate does not imply a further sequence of reductions, but acknowledged that it will continue to monitor inflation developments and will consider further easing measures if necessary. The next monetary policy meeting is scheduled for October 9.
Author: Carl Kelly, Economist