Peru holds rate, sees 2016 growth around potential

    Peru's central bank left its monetary policy interest rate steady at 3.50 percent and repeated its view from October that economic growth is expected to improve in  the second half of this year and expand at rates that are around the country's potential output in 2016.
    The Central Reserve Bank of Peru (BCRP), which raised its rate by 25 basis points in September, also repeated its guidance that it "stands ready to make adjustments in its monetary policy rate to lead inflation to the target range in the policy horizon, should it be necessary."
    Peru's inflation rate eased to 3.66 percent in October from 3.91 percent in September and a 2015-high of 4.04 percent in August, with the central bank attributing the change to prices of perishable food products and meals outside the home.
     The BCRP, which targets inflation of 2.0 percent, plus/minus 1 percentage point, also confirmed that inflation expectations were gradually converging toward its target range and inflation has been affected by temporary supply factors, such as higher food prices and the depreciation of the sol against the U.S. dollar.
     Peru's Gross Domestic Product expanded by 1.2 percent in the second quarter from the first for annual growth of 3.0 percent, up from 17 percent in the first quarter.

   

    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 3.50 percent. This level of the policy rate is compatible with the forecast that inflation will converge to the target range in 2016 and takes into account that:
 i) Inflation expectations are gradually converging towards the target range.
 ii) Inflation has been affected by temporary supply factors such as the rise in the prices of some food products and by the depreciation of the nuevo sol against the dollar, the effect of these factors not being foreseen to extend in a general manner to the rest of prices.
iii) International indicators show mixed signals of global economic recovery, as well as volatility in external financial markets and foreign exchange markets.
iv) Economic activity has been recovering gradually.

 2. The Board oversees the inflation forecasts and inflation determinants and stands ready to make adjustments in its monetary policy rate to lead inflation to the target range in the policy horizon, should it be necessary.

 3. Inflation in October recorded a rate of 0.14 percent, as a result of which the interannual rate of inflation decreased from 3.90 in September to 3.66 percent in October. The monthly rate of inflation is explained by the increase observed in the prices of perishable food products and meals outside the home. Inflation without food and energy showed a rate of 0.14 percent, as a result of which the interannual rate of inflation registered 3.46 percent in October, a similar rate to that observed in the previous month.

4. Recent indicators of economic activity and business and consumer expectations show an economic cycle with lower GDP growth rates than the potential output levels, but with a faster pace of growth in the second half of the year. It is estimated that the economy will be growing at rates similar to those of the potential output in 2016.

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: 2.25 percent.
 b. Direct repos and rediscount operations: i) 4.05 percent for the first 15 operations carried out by a financial institution in the last 12 months, and ii) the interest rate set by the Committee of Monetary and Foreign Exchange Operations for additional operations to the 15 first operations carried out in the last 12 months.
 c. Swaps: a commission equivalent to a minimum annual effective cost of 4.05 percent.

6. The Monetary Program for the following month will be approved on the Board meeting to be held on December 10, 2015."

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