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Peru Monetary Policy January 2021

Peru: Central Bank keeps rates unchanged in January

At its first meeting of the year on 14 January, the Central Bank of Peru maintained its key policy interest rate at the record low of 0.25% for the ninth meeting in a row. The decision followed a combined 200 basis points of rate cuts across March–April 2020 and was largely expected by market analysts.

The hold reflected a wait-and-see approach, supported by muted inflation expectations and a desire to support the ongoing recovery in activity. The Central Bank sees inflation at the lower end of its 1.0–3.0% target range at the end of this year. Meanwhile, the Bank noted a better-than-expected improvement in incoming economic data towards the end of 2020, although activity still remains well below the previous year’s levels.

In its communiqué, the Bank highlighted the liquidity injections—totaling close to PEN 65 billion on 13 January—provided to support the financial system. These measures have helped to bring down interest rates over recent months and produced a 12.4% year-on-year increase in credit growth in the private sector in November.

Looking ahead, the Bank kept its forward guidance unchanged again this month, leaving open the possibility of further easing and stating that it “stands ready to extend monetary stimulus in different ways”.

Regarding the outlook, Alberto J. Rojas, an economist at Credit Suisse, see rates remaining unchanged this year, commenting:

“The bank stated that it considers appropriate to maintain a strongly expansionary monetary stance for a “prolonged period” as long as the negative effects of the pandemic persist on inflation and its determinants. […] We expect the central bank to keep the policy rate unchanged at 0.25% throughout 2021.”

This is a viewpoint shared by the majority of FocusEconomics LatinFocus panelists, who see no further rate cuts before the end of the year. However, a notable minority project rates to rise gradually from Q2 2021 onwards.

The next monetary policy meeting is scheduled for 11 February 2021.

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