Peru Monetary Policy

Peru

Peru: Central Bank surprisingly cuts reference interest rate to 3.75% as economic weakness persists

June 11, 2014

The Central Bank decided to cut the reference rate from 4.00% to 3.75% at its 11 July monetary policy meeting. The move came as a surprise to the market, as the majority of analysts had expected no change. The reference rate had been at the previous level since November 2013. The decision to cut the rate comes amid continued weak economic growth and moderate inflation.

As in previous meetings, the Central Bank stated that the Peruvian economy is still performing below potential, although it still expects the sluggishness to be temporary. Newly released data and forward-looking surveys show a weakening in economic growth, mainly due to less dynamic investment and exports. Uneven recovery at a global level is putting a damper on the Peruvian export sector.

In terms of price developments, the Bank expects inflation to remain just above the upper band of its target range of 1.0%–3.0% in the coming months due to the delayed impact of recent supply shocks. Annual inflation decreased from 3.6% in May to 3.4% in June. Monetary authorities see inflation converging towards 2.0% in the medium- and long-term.

Despite the rate cut, the bank also emphasized that, "this decision does not imply the start of a series of reductions." The next monetary policy meeting will be held on 10 August.

Most of the panelists polled by FocusEconomics did not foresee this rate cut, and pending incorporation of the change into their analysis, the majority expect the reference rate to close this year at 4.00%. For 2015, the panel expects an average monetary policy rate of 4.31% at the end of the year.


Author:, Economist

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Peru Monetary Policy July 2014 0

Note: Central Bank Reference Rate in %.
Source: Peru Central Bank (BCRP).


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