Peru maintains rate as inflation hits target range

    Peru's central bank maintained it monetary policy interest rate at 3.25 percent, saying this rate is in line with inflation moving toward the bank's 2.0 percent target this year, economic activity that remains below the country's potential, anchored inflation expectations, mixed global economic recovery and increased volatility in financial markets and foreign exchange markets.
    The Central Reserve Bank of Peru cut its rate by 25 basis points in January but at that point it also said this did not imply a series of rate cuts.
    In addition to the rate cut in January, the central bank earlier on Feb. 26 continued its policy since June of cutting the reserve requirement for domestic currency deposits, cutting it by a further 50 basis points to 8.0 percent.
    As in recent months, the central bank said that it would implement additional monetary easing measures if necessary.
    Peru's headline inflation rate eased to 2.77 percent in February from 3.07 percent in January, within the bank's target range of 2.0 percent, plus/minus 1 percentage point.
    Peru's Gross Domestic Product expanded by 1.0 percent in the fourth quarter of 2014 from the same 2013 quarter, down from 1.76 percent in the third quarter.
    For the full year growth fell to 2.35 percent, down from 2013's 5.8 percent expansion and the weakest rate since 2009.


    The Central Reserve Bank of Peru issued the following statement:

"1. The Board of the Central Reserve Bank of Peru approved to maintain the monetary policy interest rate at 3.25 percent. This level of the benchmark rate is compatible with the forecast that inflation will be converging to the 2.0 percent target in 2015 and takes into account that: i) economic activity continues showing levels below its potential level; ii) inflation expectations remain anchored within the target range, and iii) recent international indicators show mixed signals of global economic recovery, as well as increased volatility in financial markets and foreign exchange markets.

2. Inflation in February showed a rate of 0.30 percent, as a result of which the interannual rate of inflation fell from 3.07 percent in January to 2.77 percent in February, within the target range. Inflation without food and energy registered a rate of 0.16 percent, as a result of which the interannual rate of inflation declined from 2.48 percent January to 2.45 percent in February

3. Recent indicators of economic activity and consumer and business confidence continue showing a weak economic cycle, with lower GDP growth rates than the potential GDP levels.

4. In March, the BCRP has continued lowering the rate of reserve requirements in domestic currency –from 8.5 to 8.0 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 keep 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 March will be approved on the Board meeting to be held on April 9, 2015.

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