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Peru: Central Bank raises benchmark interest rate to 1.50%

16:00 | Lima, Oct. 8.

The Board of Directors of the Central Reserve Bank of Peru (BCR) has decided to raise the benchmark interest rate by 50 basis points to 1.50%, maintaining an expansive monetary policy stance.

"Monetary policy is still expansionary with a historically low benchmark interest rate. The current decision does not necessarily imply a cycle of successive increases in the benchmark interest rate," the issuing entity pointed out.

This decision was taken considering that the year-on-year inflation rate increased from 4.95% in August to 5.23% in September, being temporarily above the target range due to factors such as the increase in international prices of food and fuel, as well as the exchange rate.

In addition, the BCR stated that year-on-year inflation rate excluding food and energy prices was 2.57% in September.

The Central Bank estimated that inflation is expected to return to the target range in the next twelve months and remain within that range for the rest of next year.

This estimate is based on the reversal of the effects of transitory factors on the inflation rate (exchange rate, fuel and grain prices in international markets) and on the fact that economic activity will remain below its potential level.

The bank said that one-year-ahead expected inflation increased from 3.1% in August to 3.6% in September this year and, for 2022, inflation is expected at 3.25%, slightly above the upper limit of the inflation target range.

On the other hand, it indicated that most leading indicators and expectations about the economy have slightly improved in September, but remain in pessimistic territory.

"Global economic recovery is improving, and this process is expected to continue in the next quarters, as the vaccination process continues around the world and significant stimulus packages are implemented in developed countries," the BCR noted.

The BCR Board affirmed that it is especially attentive to new information referring to inflation expectations and the evolution of economic activity to consider, if necessary, changes in the monetary policy stance.

"With the available information, it is considered appropriate to maintain an expansive monetary policy stance over a long period of time, through the gradual withdrawal of the monetary stimulus," it explained.

The BCR will continue to take the necessary steps to sustain the payments system and credit flows.

Financial markets were highly volatile in a context of uncertainty and the BCR's actions were intended to mitigate this volatility.

(END) NDP/MDV/RMB

Published: 10/8/2021
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