Peru maintains rate, will still ease further if necessary

    Peru's central bank maintained its monetary policy interest rate at 3.50 percent and repeated its recent guidance that it "will implement additional monetary easing measures if it is necessary."
    The Central Reserve Bank of Peru (BCRP), which has cut its rate by 50 basis points this year, also said the most recent economic indicators showed that growth remains below potential output.
    Peru's headline inflation rate rose to 3.16 percent in November from 3.09 percent in October while inflation without food and energy eased to 2.49 percent from 2.56 percent.
     Peru's Gross Domestic Product grew by 1.76 percent in the third quarter from the same 2013 quarter, largely unchanged from a rate of 1.72 percent in the second quarter and sharply below the first quarter growth rate of 4.8 percent.
    On Wednesday the central bank cut its forecast for economic growth this year to between 2.6 and 3.0 percent from its October estimate of 3.1 percent. For 2015 BCRP now expects growth of 5.2-5.5 percent, down from a previous forecast of 5.5 percent.
    The central bank, which has been cutting reserve requirements for banks since June last year, said it was continuing to lower the requirement for domestic currency deposits by another 50 basis points to 9.50 percent to support credit growth.
    Earlier this month Julio Velarde, BCRP governor, told Reuters that the central bank had room for a more flexible monetary policy in coming months.

    The Central Reserve Bank of Peru issued the following statement:

"The Board of the Central Reserve Bank of Peru approved to maintain the monetary policy
interest rate at 3.50 percent.
This level of the benchmark rate is compatible with the forecast that inflation will be
converging to 2.0 percent target in 2015. This forecast takes into account that: i) economic
activity projections continue showing levels below the potential levels; ii) inflation
expectations remain anchored within the target range; iii) recent international indicators show
mixed signals of global economic recovery, as well as increased volatility in financial and
exchange markets, and iv) the lower international prices of crude oil have started to reflect
gradually in the domestic market.
2. Inflation in November showed a negative rate of 0.15 percent, as a result of which inflation in
the last 12 months rose from 3.09 percent in October to 3.16 percent in November. Inflation
without food and energy recorded a rate of 0.13 percent, as a result of which the interannual
rate of inflation fell from 2.56 percent in October to 2.49 percent in November.
3. The most recent indicators of activity continue showing lower GDP growth rates than the
potential output rates for this year.
4. In December, the BCRP has continued lowering the rate of reserve requirements in domestic
currency –from 10.0 to 9.5 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."

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