Peru: Central Bank keeps rates at over nine-year low at February meeting
At its monetary policy meeting on 13 February, the Central Bank of Peru (BCRP) held the policy interest rate steady at 2.25%, the lowest point since July 2010. The Bank last cut the key rate by 25 basis points in November, the second of the two cuts delivered last year. The Central Bank’s decision matched analysts’ expectations.
Within-target inflation, declining inflation expectations and strengthening albeit still-soft economic activity prompted the Bank to hold its ground. Inflation was stable at December’s 1.9% in January, thus remaining below the midpoint of the Central Bank’s target range of 1.0%–3.0%. Meanwhile, economic activity seemingly lost steam in Q4, although some improvement in business confidence and a jump in public capital spending in the first month of 2020 suggest the economy is poised to gradually close the output gap.
The Bank did not provide any strong forward guidance in the accompanying press release. That said, monetary policy will likely remain expansionary and further rate cuts could be delivered this year. Given inflation is projected to remain close to the midpoint of the target band, further easing could be required in the event the output gap narrows slower than expected or if downside inflation surprises materialize due to a weaker-than-expected evolution of domestic demand.
The next monetary policy meeting will be held on 12 March.