Peruvian Monetary Policy Paused

October 8, 2010

To the surprise of almost all the pundits, the Central Reserve Bank of Peru left its monetary policy reference rate at 3.0% instead of implementing a 25-50 basis point further increase.  Five consecutive increases had been implemented at the five previous monthly meetings, totaling 175 basis points and reversing exactly 525 basis points of reductions between February and August of 2009.  A statement released today by officials observed that economic activity had moderated slightly.  Also CPI inflation of 2.37% in September with core inflation of 1.9% remains comfortably within the 1-3% price target, and expected inflation also appears to be anchored firmly along the target’s guideline.  Exchange rate considerations are not mentioned in the statement, but the sol’s strength and widespread speculation that Japanese easing will be followed by quantitative measures in the United States and Britain no doubt was a key deterrent against a sixth straight tightening.  This is, after all, an age when the prospect of currency war is on the mind of a lot of governments.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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