Thursday, December 12, 2013

Peru holds rate but will ease further if necessary

    Peru's central bank held its benchmark reference rate steady at 4.0 percent but said it was aware of the forecast for inflation and would consider additional easing of its policy instruments if necessary.
    Last month the Central Bank of Peru (BCRP) surprised financial markets by cutting its policy rate by 25 basis points, describing the first cut since April 2011 as a preventative move that did not imply a series of rate reductions.
    Peru's inflation rate eased to 2.96 percent in November, down from 3.04 percent in October and the bank said its reference rate was consistent with a projection of inflation of 2 percent over the 2014-2015 forecast horizon. The BCRP targets inflation of 2.0 percent, plus/minus one percentage points.
    Inflation is forecast to remain near the upper limit of the central bank's target range due to the lagged effects of supply shocks and then trend toward 2.0 percent.
    The bank also said the reserve requirement for local currency deposits was reduced to 15 percent from 16 percent this month to "sustain the dynamism of credit in soles."
    Peru's economy has been slowing due to lower exports to its trading partners, especially China, but the central bank said production data to November point to a recovery in activity in the final quarter.

    The Gross Domestic Product of Peru - a major exporter of copper, gold and silver - grew by 0.8 percent in the third quarter from the second quarter for annual expansion of 4.4 percent, down from 5.6 percent, the slowest since the third quarter of 2009 and the global financial crises.
    Last week the central bank's president, Julio Velarde, said he expected fourth quarter growth of 5.6 percent, down from the bank's forecast in October of fourth quarter growth of 6.2-6.3 percent.
    In November, following the bank's surprise rate cut, the BCRP again cut its 2013 growth forecast to around 5.2 or 5.3 percent from 5.5 percent. In 2012 the economy grew by 6.3 percent but by mid-2013 it became clear that exports were falling and the bank started to trim its forecasts.


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