Peru maintains rate as inflation expectations rise

    Peru's central bank maintained its monetary policy interest rate at 3.25 percent, citing economic activity that remains below its potential level, rising inflation expectations but within the target range, a mixed global economic recovery along with volatile financial markets and an inflation rate that has been affected by temporary factors that are reversing more slowly than expected.
    The Central Reserve Bank of Peru, which has held its rate steady since cutting it by 25 basis points in January, added that inflation expectations for 2015 remain at 3.0 percent and 2.8 percent for 2016. The central bank targets inflation of 2.0 percent, plus/minus one percentage point.
    Peru's inflation rate rose to 3.54 percent in June from 3.37 percent in May.
   
    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 has increased but remain within the target range; iii) international indicators show mixed signals of global economic recovery, as well as high volatility in external financial markets and foreign exchange markets, and iv) domestic inflation has been affected by temporary supply-side factors that have been reversing more gradually than expected.
2. Inflation in June showed a rate of 0.33 percent, as a result of which the interannual rate of inflation rose from 3.37 percent in May to 3.54 percent in June. The monthly rate of inflation is explained by the increase observed in the prices of gas for domestic use (7.0 percent), sugar (9.9 percent), meals outside the home (0.4 percent), onion (11.1 percent), water consumption (2.7 percent), and gasoline and lubricants (3.1 percent). Inflation without food and energy showed a rate of 0.26 percent, as a result of which the interannual rate of inflation rose from 2.84 percent in May to 3.0 percent in June. Inflation expectations remain in 3 and 2.8 percent for 2015 and 2016, respectively.
3. Recent indicators of economic activity and business and consumer expectations continue showing an economic cycle, with lower GDP growth rates than the potential output levels.
4. The Board oversees the inflation forecasts and inflation determinants, and stands ready to make changes in its monetary policy instruments if it is necessary.
5. 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: 2.00 percent. b. Direct repos and rediscount operations: 3.80 percent. c. Swaps: a commission equivalent to a minimum annual effective cost of 3.80 percent.
6. The Monetary Program for the following month will be approved on the Board meeting to be held on August 13, 2015."

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