Peru: Central Bank keeps reference interest rate at 3.25% in July for sixth consecutive month
July 9, 2015
The Central Bank decided to maintain the reference rate at 3.25% at its 9 July monetary policy meeting, as 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 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 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 3.4% in May to 3.5% in June, driven mainly by higher gas 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 are around 3.0%. However, monetary authorities still see inflation converging down toward 2.0% by 2016.
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 13 August.
Author: Carl Kelly, Economist