Peru: Central Bank cuts the policy interest rate by 25 basis points in July
July 13, 2017
At its 13 July monetary policy meeting, the Central Bank decided to cut the policy interest rate for the second time this year from 4.00% to 3.75%, following a reduction in May. The Bank’s decision was motivated by falling inflation expectations which project an inflation trajectory within the target range of 1.0%–3.0%, combined with improved growth prospects for the domestic economy amid a stronger worldwide recovery.
A reversal of the supply shocks that had propelled inflation above the target range in Q1, occurred in June and kept inflation within the desired band. Indicators for business activity remain optimistic as domestic economic activity is expected to recover in the coming quarters on the back of an acceleration in public and private investment. The Bank forecasts GDP growing between 2.5% and 3.0% in 2017. Nonetheless, a potential tightening in monetary policy stance by central banks in the United States and Europe introduce uncertainties into the economic picture.
Going forward, the Bank stated that it would closely monitor new developments in inflation—especially the pace at which expectations are converging to the target range—along with the degree to which supply shocks have reversed and the rate of recovery in public and private spending, to assess if further changes are needed in its monetary policy stance. The next monetary policy meeting will be held on 10 August.
Author: Nihad Ahmed, Economist