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Peru Monetary Policy March 2022

Peru: Central Bank raises rates for eighth consecutive time at March meeting

At its 10 March meeting, the Central Bank of Peru raised its key policy interest rate by 50 basis points to 4.00%, pushing it to its highest level since June 2017. The decision was in line with market analysts’ expectations and took the cumulative total of hikes since August 2021 to 375 basis points.

The raise reflected continued concern around spiraling inflation in recent months—the annual rate ended hit 6.2% in February—driven largely by higher food and energy prices. The Bank now excepts inflation to fall back within the 1.0%–3.0% target range in the first half of 2023, later than the Q4 2022 estimate given at February’s meeting. Moreover, heightened political uncertainty and its effect on exchange rates should keep price pressures elevated in the short term, giving the Bank enough cause to raise rates once again.

Looking ahead, the Bank noted that “recent international conflicts have increased uncertainty in the recovery of the world economy and in the magnitude of upward pressures on commodity prices” and that it would “consider, if necessary, changes in the monetary stance so that inflation returns to the target range over the forecast horizon”. As such, the majority of panelists see rates being raised further during the second quarter of 2022.

Commenting on the outlook, Sergio Armella, economist at Goldman Sachs, stated:

“Despite the backdrop of slower growth and the milder than expected January–February CPI prints, the overall macro environment supports continuing with the normalization of monetary policy. After today’s hike, the policy stance is still significantly accommodative (real ex-ante policy rate remains low), short- and medium-term inflation expectations continue to deteriorate, moving further above target, Emerging Market and core Developed Market central banks are turning more hawkish, and domestic policy and political uncertainty remain elevated. All in all, we expect the monetary policy rate to reach at least 4.75%–5.25%.”

The next monetary policy meeting is scheduled for 7 April.

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