Peru: Central Bank keeps reference interest rate at 3.25% in April, as expected
April 9, 2015
The Central Bank decided to maintain the reference rate at 3.25% at its 9 April monetary policy meeting, as the majority of market analysts had expected. The Bank cut the rate from 3.50% in January in an attempt to counter an ongoing loss of momentum in the economy as the mining export sector struggles with low global demand and prices. Despite sluggish growth, concerns over inflation and a weak currency likely deterred the Bank from cutting its reference rate this month.
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 increased from 2.8% in February to 3.0%, thus pushing to the upper limit of 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 8.0% to 7.5%. 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 14 May.
Author: Carl Kelly, Economist