Peru Monetary Policy

Peru

Peru: Central Bank keeps reference interest rate at 3.25% in May, as expected

May 14, 2015

The Central Bank decided to maintain the reference rate at 3.25% at its 14 May 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 a depreciating currency deterred the Bank from cutting its reference rate this month. The Peruvian sol has slipped more than 5.0% against the dollar so far this year and now stands at its weakest level relative to the dollar in six years.

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 was steady at March’s 3.0% in April, thus holding at the upper limit of the bank’s target range of 1.0%–3.0%. Monetary authorities see inflation converging down toward 2.0% by 2016.

The Bank did reduce the average reserve requirement ratio for local currency deposits from 7.5% to 7.0%. 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 11 June.

LatinFocus Consensus Forecast panelists expect an average monetary policy rate of 3.38% at the end of this year. For 2016, the panel projects an average rate of 3.91% at the end of the year.


Author:, Economist

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Peru Monetary Policy May 2015 0

Note: Central Bank Reference Rate in %.
Source: Peru Central Bank (BCRP).


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