Peru: Weak economic prospects prompt the Central Bank to cut rates to a nine-year low in November
At its monetary policy meeting on 7 November, the Central Bank of Peru (BCRP) cut the policy interest rate by 25 percentage points to 2.25%, the lowest since July 2012. This is the second rate cut so far this year, the first one having been delivered in August. Analysts’ expectations had been divided, with some expecting the Bank to stand pat.
Within-target inflation, stable and moderate inflation expectations and, most importantly, a slower-than-expected pace of recovery in economic activity, prompted the Bank to slash rates in November. Inflation was stable at September’s 1.9% in October, thus remaining below the midpoint of the Central Bank’s target range of 1.0%–3.0%. Meanwhile, although economic activity picked up in July–August, it did so less strongly than expected, while sluggish public investment spending and downbeat business expectations in October suggest the economy has not completely shrugged off recent weakness.
In its forward guidance, the Bank remarked that November’s cut did “not necessarily imply additional interest rate reductions”. Nevertheless, monetary policy will likely remain expansionary given inflation is expected to remain slightly below the midpoint of the target band amid softer-than-expected growth.
The next monetary policy meeting will be held on 12 December.