Peru: Central Bank leaves rate unchanged in June
June 12, 2014
The Central Bank decided to maintain the reference rate at 4.00% at its 12 June 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 continued tepid economic growth and moderate inflation.
As in previous meetings, the Central Bank stated that the Peruvian economy is still performing below potential. Newly released data and forward-looking surveys show a weakening in economic growth, mainly due to less dynamic investment and exports. Uneven recovery at a global level is putting a damper on the Peruvian export sector. However, the Bank expects this slowdown to be temporary.
In terms of price developments, the Bank expects inflation to 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 increased from 3.5% in April to 3.6% in May. However, monetary authorities see inflation converging to 2.0% in the medium- and long-term.
The Bank also decided to reduce the average reserve requirement ratio for local currency deposits from 12.0% to 11.5% starting in July. The Bank had been progressively lowering the requirement since April of last year. The reductions are implemented to support the expansion of credit in local currency so as to reduce the degree of dollarization in domestic financial markets and to boost economic activity amid declining copper exports. The next monetary policy meeting will be held on 10 July.
Author: Carl Kelly, Economist