Central Reserve Bank of Peru: Surprise Rate Cut

January 15, 2015

Peru’s central bank became the latest central bank to react to the disinflationary implications of plunging world oil prices.  The monetary policy rate was sliced to 3.25% from 3.5%, the third such reduction since July and the fourth since November 2013.  A 4.25% level had been maintained from May 2011 until November 2013.  Previous rate cuts were justified by sub-trend economic growth, which now is likely to be even more pronounced because of slumping copper prices.  Softer energy prices will depress overall inflation, which officials were confident at the time of their December 11 meeting would converge downward on the 2% target in 2015.  Now WTI oil costs 23% less than then.  That said, a risk exists that lower Peruvian interest rates may expose the sol to even more selling pressure than it has been under recently.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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