Tighter Peruvian Monetary Policy

January 15, 2016

A statement released after a 25-basis point hike of the Central Reserve Bank of Peru’s interest rate benchmark to 4.0% defended the tightening with the following points.  Expected inflation exceeds the 1-3% target.  So does actual CPI inflation of 4.4% in December.  Higher food prices and utility fees plus the effects of new sol depreciation account for the overshoot, and the sol remains at risk because of global financial turmoil directed at emerging economies.  Peru’s economy is expanding more slowly than its potential pace, but growth picked up somewhat last quarter.  Today’s rate hike was the third in four months following 25-basis point increases in September and December, so the increase was hardly a surprise, and the statement suggests more moves will follow.  Three-quarter’s of a 1 percentage point rate reduction between November 2013 and January 2015 have now been reversed.

Copyright 2016, Larry Greeenberg.  All rights reserved.  No secondary distribution without express permission.



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