Interest Rate in Peru

Peru - Interest Rate

Central Bank keeps rates unchanged in December

At its final meeting of the year on 10 December, the Central Bank of Peru maintained its key policy interest rate at the record low of 0.25% for the eighth meeting in a row. The decision followed a combined 200 basis points of rate cuts across March–April 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 both 2020 and 2021. Meanwhile, the Bank noted a better-than-expected improvement in incoming economic data towards the end of the year, although activity still remains well below last year’s levels.

In its communiqué, the Bank highlighted the liquidity injections—totaling close to PEN 62 billion on 9 December—provided to support the financial system. These measures have helped to bring down interest rates over recent months and produced a 13.1% year-on-year increase in credit growth in the private sector in October.

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, Paulo Mateus, an economist at Goldman Sachs, sees rates unchanged for the majority of 2021, commenting:

“Given the clear guidance of stable policy rate for an extended period, we expect the MPC to keep the rate at 0.25% through at least late 2021, and to start normalizing monetary policy only when the level of activity is on a sustainable recovery path approaching pre-pandemic levels.”

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

The next monetary policy meeting is scheduled for 14 January 2021.

The FocusEconomics panel sees the monetary policy rate ending 2021 at 0.43% and 2022 at 1.32%.