Peru: Central Bank holds reference interest rate at 3.50%
December 15, 2014
The Central Bank decided to keep the reference rate at 3.50% at its 11 December monetary policy meeting. The majority of market analysts had expected this decision. The reference rate was cut twice earlier this year in an attempt to counter a loss of momentum in the economy.
As in previous meetings, the Central Bank stated that the Peruvian economy is still performing below potential. Newly-released data and forward-looking indicators show continued weakness in the economy. Unlike other statements in recent months, the Bank did not mention that there were signs of recovery in domestic economic growth. However, the Bank did point out the increasing volatility in the foreign exchange market and the progressive impact of falling oil prices in the internal market.
In terms of price developments, annual inflation increased from 3.1% in October to 3.2% in November, above the bank’s target range of 1.0%–3.0%. However, monetary authorities see inflation converging toward 2.0% in 2015.
The Bank did reduce the average reserve requirement ratio for local currency deposits from 10.0% 9.5%. The Bank has been slowly lowering the requirement since June of last year. The reductions have been implemented to support the expansion of credit in local currency with the aim of reducing the degree of dollarization in domestic financial markets and to boost economic activity amid declining mineral exports.
Despite the decision to keep the reference unchanged, the Bank acknowledged that it will continue to monitor inflation developments and will consider further easing measures if necessary. The next monetary policy meeting is scheduled for 15 January.
Author: Carl Kelly, Economist