Peru: Central Bank leaves rate unchanged in May
May 8, 2014
The Central Bank decided to maintain the reference rate at 4.00% at its 8 May 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 is still performing below potential. Despite dynamic economic activity in recent months, newly released data and forward looking surveys show that growth has been lower than expected. Moreover, the latest 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 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 3.4% in March to 3.5% in April. However, monetary authorities see inflation converging to 2.0% in the medium- and long-term.
Unlike in previous months, the Bank made no mention of the average reserve requirement ratio for local currency deposits. The Bank had been progressively lowering the requirement since April of last year, which included a reduction from 12.5% to 12.0% last month. The reductions were 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 12 June.
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