Central Reserve Bank of Peru

February 12, 2016

Peru’s monetary policy rate was raised 25 basis points for a third straight month and by such an amount for the fourth time since September.  It now stands at 4.25%.  Inflation accelerated to 4.6% in January (versus a target of 1-3%) from 4.4% in December and 4.2% in November.  But that’s not why monetary officials have been tightening policy, since the factors behind the rise of inflation — higher prices for fresh food and electricity and the depreciation of the sol — are considered transitory.  In a released statement, Board members observe that measures of expected medium-term inflation have crept upward and also exceed the inflation target, so the string of policy tightenings since September rather are meant to ensure that the temporary rise in actual inflation doesn’t spawn a round of second-order price advances and thus become transformed into a more permanent upward ratcheting of inflation.  One good sign is that core inflation dipped a bit last month to 3.4%.  Officials expect GDP to expand in line with potential GDP, although last quarter was above.  They predict in-target inflation by the end of the forecast horizon.

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



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