Peru: Central Bank keeps interest rate on hold in June
June 8, 2017
At its 8 June meeting, the Central Bank decided to keep the reference rate at 4.00%. This decision contrasted May’s move, which marked the first cut in the Bank’s key rate in over two years. The Bank cited improved inflation expectations and an expected domestic economic recovery as reasons not to alter the reference rate.
The effects of the supply shocks continued to reverse in May, when consumer prices came closer to the upper band of the inflation target range of 1.0%-3.0%. Although business expectations decreased slightly in May, they are still on the optimistic side and the Bank expects the economy to recover in the following quarters on the back of increased government spending and higher export prices. Julio Velarde, head of the Central Reserve Bank of Peru, commented that, “the problem at this point is not the rate. It’s that credit demand has to be reactivated.”
The Bank’s statement, which was relatively neutral in tone, indicated that monetary policy decisions will depend on incoming inflation data. The next monetary policy is scheduled for 13 July.
Author: Jan Lammersen, Economist