Peru: Central Bank holds reference interest rate at 3.50%
October 9, 2014
The Central Bank decided to keep the reference rate at 3.50% at its 13 November 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 the previous statement, the Bank did not mention that there were signs of recovery in economic growth.
In terms of price developments, annual inflation is back above the bank’s target range of 1.0%–3.0%, which it had entered into for the first time this year in August. Annual inflation increased from 2.7% in August to 3.1% in September. 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 10.5% to 10.0%. 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 Bank’s decision to keep the reference unchanged, it 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 11 December.
Author: Carl Kelly, Economist