Peru: Central Bank slashes rates to one-decade low in extraordinary meeting
At an extraordinary monetary policy meeting held on 19 March the Central Bank of Peru (BCRP) decided to cut the cash rate from 2.25% to 1.25%, the lowest level since early 2010, in response to the economic and financial spillovers from coronavirus (Covid-19). Moreover, the BCRP announced it will keep injecting liquidity into the banking system in order to sustain lending.
The Bank did not provide any strong forward guidance in the accompanying press release. That said, further rate cuts cannot be ruled out going forward. Inflation is currently projected to remain close to the midpoint of the target band although risks stemming from weaker-than-expected domestic and external demand are tilted to the downside. In the event economic activity is significantly hit by the current global health emergency, output gap will likely widen and inflation could deliver downside surprises, prompting the BCRP to take action.
The next monetary policy meeting will be held on 16 April.