Peru: Central Bank leaves rate unchanged in April
April 10, 2014
The Central Bank decided to maintain the reference rate at 4.00% at its 10 April monetary policy meeting, which was in line with market expectations. The reference rate has remained at this level since November 2013. The decision to keep the rate unchanged comes amid tepid economic growth and moderating inflation.
As in previous meetings, the Central Bank stated that the Peruvian economy continues to perform below potential. Despite dynamic economic activity during the first half of this year, growth has been lower than expected. Moreover, it added that recent indicators point to a mixed picture of the recovery at a global level, which will likely put a damper on the Peruvian export sector. The Bank expects that inflation will remain just above the upper band of its target range of 1.0%-3.0% in the coming months due to the delayed impact of recent supply shocks. In fact, annual inflation decreased from 3.8% in February to 3.4% in March. However, monetary authorities see inflation converging to 2.0% in the medium- and long-term.
In a separate decision, the Bank lowered the average reserve requirement ratio for local currency deposits from 12.5% to 12.0%. The decision, which followed similar moves in the previous months, is aimed at supporting the expansion of credit in local currency as part of the Bank's objective to progressively reduce the degree of dollarization in Peruvian financial markets and to boost economic activity amid declining copper exports. The next monetary policy meeting will be held on 8 May.
The majority of the panelists polled by FocusEconomics expect monetary authorities to maintain the reference rate unchanged at 4.00% this year. For 2015, the panel expects an average monetary policy rate of 4.37% at the end of the year.
Author: Carl Kelly, Economist