Peru: Central Bank stands pat at last meeting of 2018
At its monetary policy meeting on 14 December, 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.
Within-target inflation, anchored inflation expectations and below-potential economic activity led the Bank to hold the policy rate unchanged in December. Inflation came in at 2.2% in November, above October’s 1.8% but remaining within the Central Bank’s target range of 1.0%–3.0%. As for economic activity, monthly data for the fourth quarter indicates the economy has regained some steam following a weak third quarter: In October and November, credit continued to expand robustly, and public investment increased sharply. However, business sentiment continued to dip—although remained in optimistic territory—and consumer confidence remained in negative territory in October. This suggests growth remains below potential, and is thus exerting only moderate upward pressure on prices, supporting the BCRP’s choice not to touch rates.
The Bank’s communiqué provided no forward-guidance, which means the BCRP 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 increase somewhat in 2019, as growth firms up. The next monetary policy meeting will be held on 10 January.