Peru: Central Bank holds interest rate at 3.50% in November amid moderating inflation and expected Fed rate hike
November 12, 2015
The Central Bank decided to keep the reference rate at 3.50% at its 12 November monetary policy session, meeting market expectations. The Bank hiked the rate from 3.25% to its current level in a surprise move at its meeting in September, but refrained from making a move in October and now in November amid expectations that inflation will moderate going forward and an upcoming interest rate hike by the U.S. Federal Reserve.
According to the Central Bank, inflation pressures have fallen somewhat and the impact of higher prices for food and currency depreciation is diminishing. Inflation moderated from 3.9% in September to 3.7% in October, although this still exceeds the upper limit of the bank’s target range of 1.0%–3.0%. However, the Bank stated that inflation expectations converge toward the target and monetary authorities are confident that the current interest rate will help reduce inflation further.
The Central Bank explained that the Peruvian economy continues to perform below potential, but that that a gradual recovery is underway. The Bank expects further improvements going forward and foresees the economy performing close to its potential next year. As for international developments, the Bank noted that there were mixed signals regarding the recovery of the global economy and that there is still volatility in foreign exchange and financial markets.
The Bank had noted after its rate hike in September and again in October that it was not embarking on a tightening cycle, but would consider further adjustments if inflation strayed from its long-term target range. There was no mention of keeping this option on the table in November, presumably amid increased confidence that inflation is under control. The next monetary policy meeting is scheduled for 10 December.
Author: Carl Kelly, Economist