Peru Holds Rate at 5.75% Despite Forecasts

In a surprising move, Peru’s Central Reserve Bank (BCRP) kept the interest rate unchanged at 5.75% on June 13, 2024.

Previously, the rate had undergone eight cuts from a high of 7.75%. This decision was unexpected as nine out of twelve analysts predicted a further cut of 0.25%.

Only three anticipated a steady rate, aligning with May’s inflation fitting within the bank’s target.

Inflation fell to 2.0% in May from 2.4% in April, hitting the target. Yet, core inflation, which excludes volatile items like food and energy, edged up slightly from 3.0% to 3.1%.

This uptick, primarily in services, influenced the decision to hold the rate. The Peruvian economy contracted by 0.6% at 2023’s end.

This downturn prompted calls for accelerated rate reductions to boost growth. The BCRP noted several factors in their decision-making.

Global inflation has generally decreased from the second quarter of 2022 through 2023, with some lingering high rates in certain economies.

Moreover, Peru’s twelve-month inflation expectations dipped from 2.62% in April to 2.56% in May, staying within the desired range.

The BCRP forecasts that annual inflation will stabilize around the target’s midpoint in the foreseeable future.

Recent data shows improvements in current conditions, though economic expectations remain mixed.

Globally, moderate economic growth is expected, alongside declining inflation pressures.

However, financial markets are still unstable due to uncertainties in global monetary policies and ongoing international conflicts.

On the day of the BCRP’s decision, the US dollar rate stood at S/3.77, marking a 1.83% depreciation of the local currency since the year’s start.

This financial landscape highlights the central bank’s challenge of balancing inflation control with economic support.