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Peru Monetary Policy May 2021

Peru: Central Bank holds rates at May meeting for 13th month running

At its 13 May 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 13th 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 Central 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 a moderation in incoming economic data in April, giving it further reason to keep rates on hold.

Looking ahead, the Bank kept its forward guidance unchanged again this month, leaving open the possibility of further easing and stating that it considers 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, Miguel Leiva, economist at Credicorp Capital, sees rates remaining low for the foreseeable future, commenting:

“We expect the BCRP to keep its reference rate unchanged at 0.25% at least until mid-2022, along with the environment of abundant liquidity. Although there are signs of a rebound in economic activity, it will remain below its potential level in 2022, and inflation is expected to remain within the target range. We believe that the election of the President of the BCRP by the new government is a key factor to monitor when considering the monetary stance in the coming years.”

The next monetary policy meeting is scheduled for 10 June.

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