Central Reserve Bank of Peru: A Continuing Bias Toward Accommodation

November 14, 2014

After having left Peru’s policy interest rate unchanged for a second straight meeting at 3.5% but cutting reserve requirements by another 0.5 percentage points to 10.0%, officials released a statement that emphasized the weakness of Peru’s economic cycle, the well-anchoring of expected inflation around the 2% target midpoint, mixed global economic signals and “increased volatility in financial and exchange market.”  Headline CPI inflation accelerated by 0.35 percentage points to 3.1% in October because of transitory factors, and officials still foresee a convergence on 2.0% as next year unfolds.  Core inflation is lower at 2.56% and posted only a 0.1% month-on-month increase last month.  Food and energy will have disinflationary influences in November’s data.  Reserve requirements, which also were reduced by a half percentage point in October, are being lowered to “support the growth of credit in soles.”  Peru’s central bank interest rate was cut by 25 basis points in November 2013, the first reduction in almost four years, and this was followed up with 25-bp cuts in July and September of 2014.  Economic growth of some 3% lies below its potential trajectory.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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