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Peru Monetary Policy May 2019

Peru: Central Bank holds its ground in May

At its monetary policy meeting on 9 May, the Central Bank of Peru (BCRP) kept 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 2018, by 25 basis points, which ended an easing cycle.

Moderate inflation, anchored inflation expectations and below-potential economic activity led the Bank to hold the policy rate unchanged in May. Inflation accelerated to 2.6% in April (March: 2.2%), but this was largely due to a low base effect and remained comfortably within the Central Bank’s target range of 1.0%–3.0% nonetheless. Moreover, economic activity was quite subdued in the first two months of 2019, following a notable acceleration in the fourth quarter, while consumer confidence plunged in March and businesses were somewhat less optimistic in April. Overall, available indicators suggest growth cooled in the first quarter of the year, and likely remained below potential. Inflationary pressures consequently continue to be contained.

The Bank’s forward guidance was unchanged, reemphasizing that the BCRP will stand pat as long as both inflation and inflation expectations remain within the target range and until economic growth approaches its potential. FocusEconomics panelists expect the monetary policy rate to increase only gradually this year, as growth firms up and inflationary pressures consequently increase. The next monetary policy meeting will be held on 13 June.

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