Peru Monetary Policy August 2018


Peru: Central Bank stands pat at its August meeting

August 13, 2018

At its 9 August monetary policy meeting, the Central Bank of Peru (BCRP) decided to keep the policy interest rate unchanged at an eight-year low of 2.75%, matching market expectations. It last cut the policy interest rate in March, by 25 basis points, which ended an easing cycle.

A faster economic expansion and rising, albeit still moderate, inflation have reduced the need for further monetary easing and drove the Bank’s decision to hold the policy rate unchanged in August. Although inflation in July moved further above the Central Bank’s midpoint of the target range of 1.0%–3.0%, it remains low—kept in check by a base effect due to supply disruptions last year following the coastal El Niño. Meanwhile, the economy likely did exceptionally well in the second quarter, following a notable acceleration in the first quarter. However, growth likely also remains below potential, thus not exerting strong upward pressure on prices.

The Bank’s communiqué stated that it will maintain the current expansionary stance until both inflation and inflation expectations converge to the midpoint of the target range and economic growth approaches its potential. FocusEconomics panelists expect the monetary policy rate to end 2018 slightly above its current level, as the Bank continues to provide monetary stimulus to the economy. The next monetary policy meeting will be held on 13 September.

FocusEconomics Consensus Forecast panelists see the monetary policy rate ending 2018 at 2.86%. For 2019, the panel projects a rate of 3.53% at the end of the year.

Author: Massimo Bassetti, Senior Economist

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