Peru lifts rate to 4¼%, sees gradual return of inflation to target

By Marisa Wong

Morgantown, W.Va., Feb. 12 – The board of the Central Reserve Bank of Peru decided to raise the monetary policy interest rate by 25 basis points to 4¼%, according to a bank notice.

In Friday’s notice, the bank said its decision is based on the forecasted gradual return of inflation to the target range but takes into account the following:

• Inflation has been affected by temporary supply factors, such as the rise in the prices of some food products and utility rates, and by the depreciation of the sol against the dollar;

• The increases in consumer prices have affected the expected inflation rate, pushing it out above the target range, which can, in turn, fuel inflation;

• Local economic activity has been recovering; and

• The global economy is still showing volatility in exchange rates, stock prices and commodity prices, with mixed signals of recovery in terms of production and employment in the larger economies.

Inflation in January was 0.37%, the bank reported. As a result, the interannual rate of inflation rose to 4.6% in January from 4.4% in December. The bank said the monthly rate of inflation is explained by the increase in the prices of perishable food products and electricity rates.

Inflation without food and energy was negative 0.07%, and as a result the interannual rate of inflation fell to 3.4% in January from 3.5% in December.

Recent indicators of economic activity and business and consumer expectations show an economic cycle with lower GDP growth rates than the potential output levels until the third quarter of 2015 but with a faster pace of growth in the last quarter of the year, according to the bank. This year, the economy is expected to grow at rates similar to those of the potential output, the bank added.

The board also increased the rate for overnight deposits to 3%, according to the notice. The rate for direct repos and rediscount operations was increased to 4.8% for the first 15 operations carried out by a financial institution in the last 12 months. For swaps, the commission is equivalent to a minimum annual effective cost of 4.8%.

The board will meet next on March 10.

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