Peru: Central Bank keeps reference interest rate at 3.25%
March 12, 2015
The Central Bank decided to maintain the reference rate at 3.25% at its 12 March monetary policy meeting, as the majority of market analysts had expected. The Bank cut the rate from 3.50% two meetings ago in January in an attempt to counter an ongoing loss of momentum in the economy.
As in previous meetings, the Central Bank stated that the Peruvian economy is still performing below potential. Newly-released data and forward-looking indicators show continued weakness in the economy. In terms of price developments, annual inflation decreased from 3.1% in January to 2.8% in February, thus falling back into the bank’s target range of 1.0%–3.0%. Monetary authorities see inflation converging toward 2.0% in 2015.
The Bank did reduce the average reserve requirement ratio for local currency deposits from 8.5% to 8.0%. The Bank has been slowly lowering the requirement during the past months. The reductions have been implemented to support the expansion of credit in local currency with the aim of reducing the degree of dollarization in domestic financial markets and to boost economic activity amid declining mineral exports.
Despite the decision to hold the reference rate, the Bank signaled that it is prepared to take measures if inflation veers from the expected course. The next monetary policy meeting is scheduled for 9 April.
Author: Carl Kelly, Economist