Peru: Central Bank keeps reference interest rate at 3.25% in July for seventh consecutive month
August 13, 2015
The Central Bank decided to maintain the reference rate at 3.25% at its 13 August monetary policy meeting, as market analysts had expected. The Bank last made a rate cut in January, from 3.50% to its present level, in an attempt to counter a loss of momentum in the economy as the mining export sector struggles with low global demand and prices. Despite ongoing weakness in the economy, rising inflation and concerns over a depreciating currency have deterred the bank from cutting its reference rate further.
As in previous meetings, the Central Bank stated that the Peruvian economy is recovering but still performing below potential. Recent data show an uneven economic recovery at the global level as well as volatility in international financial and foreign exchange markets. In terms of price developments, annual inflation increased from 3.5% in June to 3.6% in July, driven mainly by higher electricity prices. Inflation is now further above the upper limit of the bank’s target range of 1.0%–3.0%. The Bank noted that inflation expectations for 2015 and 2016 are currently at 3.15% and 2.95% respectively.
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 10 September.
Author: Carl Kelly, Economist