Peru: Central Bank holds rates at June meeting; adopts slightly less dovish tone
At its 10 June 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 14th consecutive hold since a combined 200 basis points of rate cuts across March–April 2020 took the rate 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 Bank sees inflation remaining within the 1.0–3.0% target range throughout 2021–2022, and continues to project it to place toward the lower end of that range during 2022. Meanwhile, the Bank noted an improvement in incoming economic data in May after April’s moderation, with expectations of a pronounced vaccine-driven global economic recovery in the coming months.
Looking ahead, the Bank amended its forward guidance slightly this month, dropping the mention that it will maintain rates for “an extended period” and instead adopting a slightly less dovish tone by stating it will “maintain a strong expansionary monetary stance as long as the negative effects of the pandemic on inflation and its determinants persist”.
Regarding the outlook, Alberto Ramos, economist at Goldman Sachs, sees rates remaining low for the foreseeable future, commenting:
“Given the continued guidance of stable policy rate and benign inflation outlook, we expect the MPC to keep the rate at 0.25% through late 2021, and to start normalizing monetary policy only when the level of activity is on a sustainable recovery path approaching pre-pandemic levels. Political and policy uncertainty and risk management considerations could eventually force the Central Bank to change the game-plan and anticipate liftoff (i.e., earlier start of monetary policy normalization).”
The next monetary policy meeting is scheduled for 8 July.