Peru maintains rate, sees rise in inflation as temporary

   Peru's central bank maintained its monetary policy interest rate at 3.25 percent, saying the rise in inflation was due to "temporary supply-side factors, which will reverse gradually."
   The Central Reserver Bank of Peru last cut its rate by 25 basis points in January but at that point it said this did not imply a series of rate cuts.
    Peru's consumer price inflation rate rose to 3.02 percent in March from 2.77 percent in February, above the central bank's target range of 2.0 percent, plus/minus one percentage point.
    The central bank attributed the increase in inflation to higher prices of food, meals outside the home, fuel and a seasonal rise in education costs.
    But the bank also said it's current interest rate was compatible with inflation covering to its 2.0 percent target in the 2015-16 forecast horizon, taking into account that economic activity remains below its potential level, anchored inflation expectations, a mixed global recovery and high volatility in financial and foreign exchange markets.
    During the month the central bank also continued its policy since June 2013 of cutting the reserve requirement for domestic currency deposits, cutting it to 7.5 percent from 8.0 percent.

 
    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 policy rate is compatible with the forecast that inflation will converge to the 2.0 percent target in the 2015-2016 forecast horizon and takes into account that: i) economic activity continues showing levels below its potential level; ii) inflation expectations remain anchored within the target range; iii) recent international indicators show mixed signals of global economic recovery, as well as high volatility in financial markets and foreign exchange markets, and iv) domestic inflation has been affected by temporary supply-side factors, which will reverse gradually.

2. Inflation in March showed a rate of 0.76 percent, as a result of which the interannual rate of inflation rose from 2.77 percent in February to 3.02 percent in March, due mainly to the higher prices of perishable food products, meals outside the home, fuels, and the seasonal rise registered in education costs. Inflation without food and energy showed a rate of 0.91 percent, as a result of which the interannual rate of inflation rose from 2.45 percent February to 2.58 percent in March due to the seasonal increase observed in the prices of education and transportation.

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

4. In April, the Central Bank has continued lowering the rate of reserve requirements in domestic currency –from 8.0 to 7.5 percent– with the aim of supporting the growth of credit in soles.

5. The Board oversees the inflation forecasts and inflation determinants, and stands ready to make changes in its monetary policy instruments 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 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 following month will be approved on the Board meeting to be held on May 14, 2015."
 
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