Peru Monetary Policy October 2018

Peru

Peru: Central Bank stands pat in October

October 11, 2018

At its monetary policy meeting on 11 October, 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.

Moderate inflation, anchored inflation expectations and some cooling in economic activity led the Bank to hold the policy rate unchanged in October. Inflation came in at 1.3% in September, slightly above August’s 1.1% but still close to the lower band of the Central Bank’s target range of 1.0%–3.0%. Meanwhile, high frequency data for the third quarter indicates the economy has continued to expand but likely below potential, thus not exerting strong upward pressure on prices: The pace of expansion in economic activity remained subdued in July, while business confidence declined in both August and September.

The Bank’s communiqué reiterated 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 increase moderately in 2019, as the Bank tightens its monetary stance due to growth approaching its potential. The next monetary policy meeting will be held on 8 November.

FocusEconomics Consensus Forecast panelists see the monetary policy rate ending 2019 at 3.53%. For 2020, the panel projects a rate of 3.80% at the end of the year.


Author: Massimo Bassetti, Economist

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