Peru: Central Bank joins the doves in August
August 8, 2019
At its monetary policy meeting on 8 August, the Central Bank of Peru (BCRP) slashed the policy interest rate by 25 basis points to a nine-year low of 2.50%, broadly in line with analysts’ expectations. The Bank last cut the policy interest rate in March 2018, also by 25 basis points, which ended an easing cycle.
Within target inflation, easing inflation expectations and weak economic activity prompted the Bank to slash rates and follow the dovish trend sweeping across emerging economies. Inflation receded to 2.1% in July (June: 2.3%), thus sitting near the mid-point of the Central Bank’s target range of 1.0%–3.0%. Meanwhile, economic activity stagnated in April–May amid supply-side uncertainties and cooling public investment.
In its forward guidance, the Bank remarked that further rate cuts were not “necessarily” on the cards. Under current conditions, inflation is expected to trend near the mid-point of the target range, although sustained weakness in domestic demand could dent price pressures going forward.
The next monetary policy meeting will be held on 12 September.
Author: Nicolás J. Aguilar, Economist