The Board of Directors of the
Central Reserve Bank (BCR) has decided to raise the reference interest rate by 25 bps to 7.25%, thus continuing to adjust its monetary policy stance. This decision takes into account the following developments:
i. Year-on-year inflation decreased from 8.53% in September to 8.28% in October, while core inflation increased from 5.51% in September to 5.72% in October, both above the upper limit of the inflation target range.
ii. The significant increase in international food and fuel prices since the second half of last year, accentuated by international conflicts, has led to a sharp increase in global inflation in magnitudes not seen in many years and towards levels significantly higher than the inflation targets of central banks, both in advanced and other economies in the region.
iii. A downward trend in year-on-year inflation is forecast, with a return to the target range in the second half of next year, due to a moderation of the impact of international food and fuel prices, and to a reduction in inflation expectations.
iv. One-year-ahead expected inflation decreased from 4.89% in September to 4.78% in October; and inflation in 2023 is expected at 4.19%, above the upper limit of the inflation target range.
v. Most leading and expectations indicators for economic activity remain in pessimistic territory.
vi. The outlook for global economic activity this year and the next has deteriorated due to expected policy interest rate hikes in advanced economies, lower growth in China, and international conflicts.
The Board is particularly attentive to new information on inflation and its determinants, including the evolution of inflation expectations and economic activity, to consider changes in the monetary stance. The Board reaffirms its commitment to adopt necessary actions to ensure the return of inflation to the target range over the forecast horizon.
It also decided the following interest rates on its window facility operations in domestic currency with financial entities:
i. Overnight deposits: 5.25% per year.
ii. Direct security/currency repo and rediscount operations: i) 7.75% per year for the first 10 operations in the last 3 months and ii) the interest rate set by the Monetary and Exchange Operations Committee for operations in addition to these 10 operations in the last 3 months. Besides, the Monetary and Exchange Operations Committee may establish higher rates based on the amount of the operations.
The BCR Board's next monetary policy session will take place on December 7, 2022.
Editor's note: Information provided by the Central Reserve Bank of Peru.
(END) NDP/RMB/MVB
Published: 11/11/2022