Peru maintains policy rate at 4¼%; sees inflation spike from El Nino

By Wendy Van Sickle

Columbus, Ohio, April 7 – The board of the Central Reserve Bank of Peru decided to maintain the monetary policy interest rate at 4¼%, according to a bank notice.

The bank said the rate is consistent with its forecast that inflation will reach the target during 2017 and takes into account the following:

• The faster pace of inflation seen recently is transitory and is associated with the supply shocks caused by the effects of El Nino;

• The bank’s 12-month expectations of inflation are temporarily close to the upper band of the inflation target range;

• Domestic economic activity growth has continued to slow in the first quarter of 2017, showing a pace below its potential growth level. Activity is expected to gradually pick up in the coming quarters as a result of increased government spending and higher export prices; and

• The global economy shows signs of recovery, but there is still uncertainty about developed countries’ policies.

In March, inflation was at 1.3%, which the bank called “an extraordinary high rate,” on increased prices of some foods that resulted from El Nino’s severe rains.

The year-to-year rate of inflation rose to 3.97% in March from 3.25% in February.

Inflation without food and energy was at 0.84%, as a result of which the year-to-year rate increased to 2.27% in March from 2.56% in February, which is within the target range.

“It should be pointed out that, historically, inflation has been affected by supply shocks that have increased it transitorily and reversed thereafter, which is also what is happening today,” the bank said in the notice.

Business indicators fell in March. In line with this, GDP is expected to grow 3% to 3.5% in 2017.

The board left the rate for overnight deposits at 3% and the rate for direct repos and rediscount operations at 4.8% for the first 15 operations carried out by a financial institution in the last 12 months.

The board will meet next on May 11.

© 2015 Prospect News.
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