Peru cuts rate 25 bps, says it doesn't imply further cuts

    Peru's central bank cut its monetary policy interest rate by 25 basis points to 3.25 percent but added that this "did not imply successive interest rate cuts."
    However, the Central Reserve Bank of Peru also added that it would "implement additional monetary easing measures if it is necessary" in light of the outlook for inflation.
     The Central Reserve Bank of Peru, which cut its rate by 50 basis points in 2014, added that data continue to show a weak economic cycle with Gross Domestic Product below output and significant drops in the activity of primary sectors due to negative supply.
    The central bank said the rate cut will help inflation converge more rapidly towards its 2.0 percent target in 2015, taking into account that economic activity is below potential, inflation expectations are anchored within the target range, the mixed global economic recovery and lower crude oil prices.
    Peru's headline inflation rate rose slightly to 3.22 percent in December from 3.16 percent in November and excluding food and energy, inflation rose to 2.51 percent from 2.49 percent.
    Earlier this month the central bank continued its policy since June of cutting reserve requirements to boost the flow of credit, reducing the requirement for domestic currency deposits by a further 50 basis points to 9.0 percent.


    The Central Reserve Bank of Peru issued the following statement:

"The Board of the Central Reserve Bank of Peru approved to lower the monetary policy
interest rate by 25 bps to 3.25 percent.
This level of the benchmark rate is compatible with the forecast that inflation will be
converging more rapidly to the 2.0 percent target in 2015. This forecast also takes into
account that: i) economic activity continues showing levels below its 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 markets, and iv) the lower international prices of crude oil have started to gradually
reflect in the domestic market.
This interest rate reduction does not imply successive interest rate cuts.
2. Inflation in December showed a rate of 0.23 percent, as a result of which the interannual rate
of inflation rose from 3.16 percent in November to 3.22 percent in December. Inflation
without food and energy registered a rate of 0.49 percent, as a result of which the
interannual rate of inflation rose from 2.49 percent in November to 2.51 percent in
December.
3. Recent indicators of activity continue showing a weak economic cycle, with lower GDP
growth rates than the potential output rates in 2014 and significant drops in the rates of
primary activities due to negative supply factors.
4. In January, the BCRP has continued lowering the rate of reserve requirements in domestic
currency –from 9.5 to 9.0 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 lower the annual interest rates on lending
and deposit operations in domestic currency (not included in auctions) between the BCRP
and the financial system, as specified below:
a. Overnight deposits: 2.05 percent.
b. Direct repos and rediscount operations: 4.05 percent.
c. Swaps: a commission equivalent to a minimum annual effective cost of 4.05 percent.
7. The Monetary Program for the month of February will be approved on the Board meeting to
be held on February 12, 2015."

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