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Peru Monetary Policy April 2021

Peru: Central Bank holds rates at April meeting, marking one year at record low

At its 8 April meeting, the Central Bank of Peru held its key policy interest rate at 0.25%, as widely expected by market analysts. The decision marked the 12th consecutive hold since a combined 200 basis points of rate cuts across March–April 2020 saw the rate drop to its current record low.

The hold reflected a continued wait-and-see approach, supported by muted inflation expectations and a desire to bolster the ongoing recovery in activity. The Central Bank sees inflation remaining within the 1.0–3.0% target range throughout 2021–2022, and still projects it to place toward the lower end of that range during 2022. Meanwhile, the Bank also noted an improvement in incoming economic data in March.

Looking ahead, the Bank kept its forward guidance unchanged again this month, leaving open the possibility of further easing and stating that it considered it “appropriate to maintain the highly expansive monetary policy stance for an extended period as long as the negative effects from the pandemic over inflation and its determinants persist”.

Regarding the outlook, Luis Ortega, economist at Credicorp Capital, sees rates remaining low for the foreseeable future, commenting:

“We reiterate our view that the Central Bank will hold its reference rate unchanged at 0.25% at least until mid-2022 along with an abundant liquidity environment. Even though signals of economic rebound start to be observed, GDP will remain below its potential even during 2022, and inflation is expected to remain within the target range during the forecast horizon. If the negative output gap narrows at the expected pace, the monetary policy rate could return to its pre-pandemic level of 2.25% only around mid-2024 (or even later).”

The next monetary policy meeting is scheduled for 13 May.

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