Macchu Picchu Peru

Peru Monetary Policy January 2020

Peru: Central Bank keeps rates on hold at over nine-year low at first meeting of the year

At its monetary policy meeting on 9 January, the Central Bank of Peru (BCRP) held the policy interest rate steady at 2.25%, the lowest 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, steady and moderate inflation expectations and soft economic activity prompted the Bank to hold its ground. Inflation was stable at November’s 1.9% in December, thus remaining below the midpoint of the Central Bank’s target range of 1.0%–3.0%. Meanwhile, economic activity picked up less than expected in Q3, and only limited improvements in business confidence and weak public capital spending in the final quarter of last year suggest the economy remains in a relatively soft patch.

The Bank did not provide any meaningful forward guidance in the accompanying press release, although November’s communiqué stated that the latest cut did “not necessarily imply additional interest rate reductions”. That said, monetary policy will likely remain expansionary and further rate cuts could be delivered this year if the output gap narrows slower than expected, given inflation is projected to remain close to the midpoint of the target band.

The next monetary policy meeting will be held on 13 February.

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