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Peru Holds Rate Steady, Sees Inflation in Range in Q2

Peru’s central bank left its policy rate steady at 2.75 percent, noting the fall in inflation in the last five months, declining inflation expectations and economic activity that is below potential.

The Central Reserve Bank of Peru (BCRP), which cut its rate in March and January this year, also reiterated its recent guidance that it is paying close attention to inflation and would consider making additional changes to the policy rate if it were necessary.

BCRP has been in an easing cycle since May 2017 and has lowered the key rate six times by a total of 150 basis points.

Peru’s inflation rate has been falling rapidly since March last year when food prices jumped in response to devastating floods that killed more than 100 people and wiped out crops and roads.

In March inflation fell to only 0.36 percent, sharply down from 3.97 percent 12 months ago, and well below the BCRP’s target range of 1-3 percent.

The central bank said inflation is projected to return to its target range in the second quarter and then gradually converge to 2.0 percent by the end of this year. But inflation expectations 12 months ahead have continued to decline to 2.18 percent.

The Peruvian sol has been relatively steady in the last year and was trading at 3.22 to the U.S. dollar today, up 0.9 percent this year.

This article originally appeared on CentralBankNews.info and is reproduced here with permission from the author.

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