Peru Becomes Second Latin American Country with a Central Bank Rate Hike

May 7, 2010

The Central Reserve Bank of Peru lifted its reference rate for the first time since September 2008.  The increase, like then, was by 25 basis points today to 1.50%, still 500 basis points below the prior cyclical peak.  Today’s increase was not expected, and a statement from officials underscored the preventive nature of this action and advised that one needn’t interpret the move as the first in a series of tightenings.  Future decisions will depend on the evolution of inflation, which so far shows no sign of stress.  Headline CPI inflation of 0.76% in April remained below the 1-3% target range, although core was in the middle.  After experiencing a fairly pronounced recession, GDP is growing again and likely to surpass average economic growth in South America.  Seven rate cuts were implemented last year, starting with a drop of 25 bps in February and followed by another 25-bp move in March, four consecutive drops of 100 bps in April, May, June and July, and a final decline of 75 bps in August.  Given the admonition not to read too much into today’s increase, no change seems the likeliest decision at next month’s policy meeting.

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



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