On Thursday, Peru’s Central Reserve Bank cut its benchmark interest rate to 6.50%, down 25 basis points from December’s 6.75%.
The bank’s “Monetary Program January 2024” report states this cut doesn’t mean ongoing rate reductions. Future changes will rely on fresh inflation data.
This decision follows the twelve-month inflation rate’s drop from 3.6% in November to 3.2% in December.
Inflation, excluding food and energy, also fell from 3.1% to 2.9%.
The BCRP observes these rates have been decreasing since early 2023. Inflation, minus food and energy, is now within the target range.
December’s inflation was 0.41%, with non-food and energy inflation at 0.36%.
The noticeable inflation decrease in Peru from June to December 2023 was partly due to lessened food supply issues.
Moreover, twelve-month inflation expectations dropped from 3.15% to 2.83% between November and December, fitting within the 1-3% target range.
Despite projections of meeting the target range soon, El Niño poses climatic risks.
The BCRP notes that 2023’s social conflicts and the El Niño event impacted the economy and domestic demand.
The board remains focused on inflation and economic data and is ready to adjust monetary policy as needed.
“The board is committed to ensuring inflation returns to the target range,” the bank affirms.
Background
The rate cut by Peru’s Central Bank is a strategic response to the country’s inflation trends. Such moves are common in economies facing similar inflationary pressures.
They aim to balance economic growth with price stability.
Globally, central banks adjust rates to manage economic conditions. In stable economies, rate changes are less frequent, reflecting steady inflation.
Peru’s action aligns with global practices in monetary management.
Regionally, this move positions Peru alongside other Latin American countries tackling inflation.
These economies often adjust rates to influence economic activity and control prices. Peru’s strategy mirrors these regional efforts.