Peru maintains rate, sees inflation easing to 2.0% in 2017

    Peru's central bank left its monetary policy rate at 4.25 percent and forecast that inflation this year will ease to around 3.0 percent this year and then decline to 2.0 percent next year.
    The Central Reserve Bank of Peru (BRCP), which paused in its tightening cycle in March after four rate hikes, added inflation expectations had now declined to within the bank's target range over the next two years.
    Peru's inflation rate has been decelerating from a 2016-high of 4.61 percent in January and hit a low of 2.94 percent in August. In September and October inflation picked up speed again, rising to 3.41 percent in October on higher food prices, which the central bank considers a temporary factor.
    Excluding food and energy, the monthly inflation rate in October was 0.12 percent compared with 0.41 percent for all items.
    The central bank has for months said inflation expectations were too high but said today that they were now within its target range. The BRCP targets inflation at a midpoint of 2.0 percent, within a 1 percentage point tolerance range.
    The central bank confirmed that it still expects Peru's economy to grow by 3.8 percent this year and 4.2 percent in 2016. In October the central bank raised its 2016 forecast from 3.7 percent.
    Peru's Gross Domestic Product grew by an annual rate of 3.7 percent in the second quarter, down from 4.4 percent in the first quarter.
    Business expectations remain at a high level, the central bank, adding that investment in construction had been weak in recent months.
    On Wednesday the central bank's general manager, Renzo Rossini, was quoted as saying he expects private investment to rebound next year and grow 5.4 percent due to an improvement in the hard-hit mining sector and deregulation, which should help domestic demand grow nearly 4.0 percent.
    The exchange rate of Peru's sol, which declined against the U.S. dollar from August 2014 until late February this year, was trading at 3.40 to the dollar today, largely unchanged from 3.41 at the start of the year.

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