Peru maintains rate, but will ease if necessary

    Peru's central bank maintained its monetary policy reference rate at 3.50 percent, as expected, but maintained an easing bias by saying it "will implement additional monetary easing measures if it is necessary. "
    The Central Reserve Bank of Peru, which has cut its rate by 50 basis points this year, most recently in September, also said current and leading indicators "continue to show a weak economic cycle, with lower GDP growth rates than the potential output, although some signals of recovery have been observed in September."
    Peru's inflation rate rose to 2.74 percent in September from 2.69 percent in August, within the central bank's target range of 2.0 percent, plus/minus one percentage point, and expectations remain anchored to the range.
    Last month the central bank's president, Julio Velarde, forecast Peru's economy would likely expand between 3.5 and 4 percent this year, below the bank's August estimate of around 4 percent. The central bank has trimmed its growth forecast several times this year from an initial estimate of 6 percent as exports have declined.
    In the second quarter, Peru's Gross Domestic Product expanded by an annual 1.7 percent, down from 4.8 percent in the first quarter.
    The central bank issued the following statement:


"The Board of the Central Reserve Bank of Peru approved to maintain the monetary policy
reference rate at 3.50 percent.
This level of the reference rate is compatible with a projected rate of inflation within the target
range in 2014 and with inflation converging to 2.0 percent in 2015. This forecast takes into
account that: i) current and advanced indicators of economic activity continue to show a pace
of growth below their potential; ii) inflation expectations remain anchored within the inflation
target range; iii) recent international indicators show mixed signals of recovery in the world
economy, as well as higher volatility in financial and exchange markets, and iv) the supply
factors that led inflation to increase are moderating.
2. Inflation in September showed a rate of 0.16 percent, as a result of which inflation in the last
12 months rose from 2.69 percent in August to 2.74 percent in September, within the target
range. Inflation without food and energy recorded a rate of 0.09 percent, as a result of which
the interannual rate of inflation rose from 2.56 percent in August to 2.57 percent in
September.
3. Current and advanced indicators of activity continue to show a weak economic cycle, with
lower GDP growth rates than the potential output, although some signals of recovery have
been observed in September.
4. In October, the BCRP has continued lowering the rate of reserve requirements in domestic
currency –from 11.0 to 10.5 percent– with the aim of supporting the growth of credit in soles.
5. The Board oversees the inflation forecasts and inflation determinants, and will implement
additional monetary easing measures if it is necessary.
6. The Board of the Central Bank also approved to maintain the annual interest rates on lending
and deposit operations in domestic currency (not included in auctions) between the BCRP
and the financial system, as described below:
a. Overnight deposits: 2.30 percent.
b. Direct repos and rediscount operations: 4.30 percent.
c. Swaps: a commission equivalent to a minimum annual effective cost of 4.30 percent.
7. The Board will approve the Monetary Program for November on its meeting of November 13,
2014"

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