Macchu Picchu Peru

Peru Monetary Policy April 2020

Peru: Central Bank slashes policy rate to 0.25% amid Covid-19 pandemic

The Central Bank of Peru (BCRP) decided to chop the policy interest rate by 100 basis points at an extraordinary meeting on 9 April, bringing the rate to 0.25%, an all-time low. The move is designed to help shield the economy from the fallout of Covid-19. While market analysts had expected upcoming cuts, the move was more aggressive than anticipated. The Bank last cut the key rate by 100 basis points in March, in its first move to cushion the economic blow inflicted by the coronavirus pandemic.

Duel demand and supply-side economic shocks from Covid-19, which have significantly weakened Peru’s outlook and heightened risks to the global economy, fueled the Banks move to ease monetary conditions. In addition, low inflation, which the Bank expects to ease toward the lower bound of its 1.0%-3.0% target band due to soft domestic demand, has created space for sizable easing.

The BCRP left open the possibility of further accommodative action, stating it will pay “close attention to new information on inflation and its determinants to continue expanding monetary stimulus”. It also stressed that it has additional tools at its disposal to inject liquidity. The Bank has been carrying out liquidity injection operations in recent weeks through security and currency repurchase agreements.

The next monetary policy meeting is scheduled for 7 May.

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