RIO DE JANEIRO, BRAZIL – The Central Reserve Bank of Peru (BCRP) raised the benchmark interest rate by 50 basis points to 3% this Thursday.
With this new increase, the interest rate has risen by 275 basis points in the last five months, after being fixed at 0.25% in the first half of 2021.
For this new increase, the Central Bank has taken into account that the twelve-month inflation rate is still above the target range (3%) by increasing from 5.66% in November to 6.43% in December, mainly due to the rise in food and fuel prices.
The entity in charge of regulating Peru’s monetary policy detailed in a statement that national inflation would stand at 3.24%, slightly above the upper limit of the target range, excluding food and fuel prices.
The BCRP forecasts that inflation will return to the target range in the fourth quarter of 2022. At this time, it predicts that transitory factors for inflationary increases such as the exchange rate and fuel and grain prices will be reversed, while the Peruvian economy will remain below its potential.
For this reason, the organization presided by Julio Velarde raised its inflation projection for this year from 3.5% to 3.7%, which will again be above the ideal range set by the institution.
Most of the indicators of expectations on the economy continued in December in the pessimistic range, the Central Bank said.
It also recalled that the global economic recovery is evolving slower than expected due to the resurgence of covid-19, the appearance of new variants of the coronavirus, and the bottlenecks in the worldwide supply of goods and services.
In this sense, the expectation is that the recovery process will continue in the coming quarters as vaccination continues to advance in the world and significant fiscal stimulus programs in developed countries.
Given this scenario, the board of directors of the Central Bank of Peru will remain attentive to new information on inflation expectations and the evolution of economic activity.
If necessary, make changes in the monetary policy stance to ensure the return of inflation to the target range.