Peru holds rate as it lowers inflation forecast for 2018

    Peru's central bank maintained its monetary policy rate at 4.25 percent and said it expects inflation to be within its target range before the end of this year as inflation expectations continue to decline.
   The Central Reserve Bank of Peru (BRCP), which in March paused in its tightening cycle after four rate hikes, said inflation is expected to ease to 3.4 percent this year, then to 2.9 percent in 2017 and 2.5 percent in 2018.
    At its meeting in May, the central bank's board lowered its forecast for inflation this year to 3.4 percent from 3.5 percent and the 2017 forecast to 2.9 percent from 3.0 percent.
    Today it lowered the 2018 forecast to 2.5 percent from the 2.6 percent it forecast last month.
    Peru's consumer price inflation rate eased to 3.54 percent in May from 3.91 percent in April, nearing the bank's target of 1 percent to 3 percent around a 2.0 percent midpoint.
   In its statement, the central bank said the impact on inflation from higher food and utility prices, and the exchange rate have been reversed and the economy is growing close to its potential rate.
    Peru's inflation rate has been fueled by higher food prices from the El Nino weather pattern, which destroyed many crops, and increased import prices from a depreciation of the sol's exchange rate.
   The sol depreciated from mid-2014 until February 2016 when it hit a nearly 13-year low against the U.S. dollar. Since then it has firmed and was trading at 3.31 to the dollar today for a rise of 3 percent since the beginning of this year.
    Peru's economy grew by an annual rate of 4.4 percent in the first quarter of this year, down from 4.7 percent in the fourth quarter of 2015.

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