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Peru Monetary Policy December 2019

Peru: Central Bank keeps rates steady at over nine-year low in December

At its monetary policy meeting on 12 December, the Central Bank of Peru (BCRP) held the policy interest rate steady at 2.25%, the lowest since July 2010, following a 25 basis-point cut in November. The Central Bank’s decision matched analysts’ expectations, with the Bank having delivered two rate cuts this year.

Within-target inflation, steady and moderate inflation expectations and soft economic activity prompted the Bank to stand pat. Inflation was stable at October’s 1.9% in November, 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, as flat growth in public investment and an unsupportive external environment limited the scope of the acceleration. Only limited improvements in business confidence and weak public capital spending in October-November suggest the economy has not completely shrugged off recent weakness.

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 next year, given inflation is expected to remain slightly below the midpoint of the target band amid softer-than-expected growth.

The next monetary policy meeting will be held on 9 January.

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