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Peru Monetary Policy November 2021

Peru: Central Bank raises rates for fourth successive meeting in November

At its 11 November meeting, the Central Bank of Peru (BCRP) raised its key policy interest rate by 50 basis points to 2.00%. The decision was in line with market analysts’ expectations, and took the cumulative total of hikes since August to 175 basis points.

The raise reflected continued concerns regarding the spike in inflation in recent months—the annual rate hit a near 13-year high of 5.8% in October—driven largely by a weaker sol amid significant political turmoil since Pedro Castillo’s presidential election victory. While inflation is expected to fall back within the 1.0%–3.0% target range in the coming 12 months, heightened political uncertainty and its effect on exchange rates could push price pressures higher in the short term, giving the Bank enough cause to raise rates once again.

Looking ahead, the Bank maintained its somewhat dovish tone, repeating that its latest move did not “necessarily imply a cycle of successive increases in the reference rate”, and that it “sees the convenience of maintaining an expansionary monetary policy stance for a extended period”. Nevertheless, the majority of our panelists see the Bank raising rates again before the end of 2021.

Earlier in November, Julio Velarde was sworn in for another five-year term as the head of the BCRP. Velarde has been seen as a steady hand in his three previous terms as president, and his reappointment should settle the nerves of international investors somewhat.

Commenting on his confirmation, Lee Sutton, Senior Country Risk Analyst at Fitch Solutions, said:

“The reappointment of BCRP President Julio Velarde will help assuage concerns about monetary policy direction. In November 2021, Velarde, who has led the BCRP since 2006, was sworn in for an additional five-year term. Policy uncertainty has lingered since leftist President Pedro Castillo’s election in June 2021, causing a sell-off in Peruvian assets, while the administration initially delayed the announcement that Velarde would serve another term. That said, his continued leadership and support from Finance Minister Pedro Francke indicates the government’s commitment to the BCRP’s inflation-targeting mandate, which will bolster investor sentiment.”

The next monetary policy meeting is scheduled for 9 December.

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