Peru's central bank left its monetary policy interest rat at 4.25 percent as inflation is still seen approaching its 2.0 percent target by the end of 2017 and revised upwards its estimate for 2016 economic growth to 3.9 percent from November's estimate of 3.8 percent.
The Central Reserve Bank of Peru (BCRP), which paused in its tightening campaign in March this year after four rate hikes, maintained its forecast for 2017 growth of 4.2 percent.
Peru's Gross Domestic Product grew by 2.0 percent in the third quarter for annual growth of 4.4 percent, up from 3.7 percent in the third quarter, with the central bank saying construction and manufacturing had declined in recent months due to weak investment but business expectations are high and on the optimistic side.
Headline inflation in Peru eased to 3.35 percent in November from 3.41 percent in October, with the impact of adverse weather considered to have a transitory effect.
Earlier this month the central bank's president, Julio Velarde, said changing interest rates in response to drought in the farming regions would not keep a lid on any food price increases as these would be driven by temporary supply and not demand.
Peru's government has declared emergencies in parts of southern Peru and the northern Andes region due to drought that is threatening the important crops of rice and potatoes.
Velarde, whose bank targets inflation in a range of 1 to 3 percent, expects inflation to be close to 3 percent by the end of this year.
The Central Reserve Bank of Peru issued the following statement:
"1. The Board of the Central Reserve Bank of Peru approved to maintain the monetary policy
interest rate at 4.25 percent.
This decision is consistent with an inflation forecast in which
inflation converges to 2 percent towards the end of 2017 and takes into account that:
i) Expectations of inflation in 12 months have increased slightly, but continue showing a
declining path within the target range in the next two years;
ii) The water deficit generated by adverse climate factors has been affecting inflation in
iii) Domestic economic activity is expected to grow at a rate close to its potential growth
level in the following quarters, and
iv) The global economy shows signals of recovery and lower volatility in international
2. The Board oversees new data on inflation and inflation determinants in the forecast horizon
to evaluate the convenience of making additional adjustments in the monetary policy rate.
3. Inflation in November showed a rate of 0.29 percent due to rises in the prices of some food
products and electricity rates, which has led the year-to-year rate of inflation to decline from
3.41 percent in October to 3.35 percent in November. Inflation without food and energy
recorded a rate of 0.15 percent, as a result of which the year-to-year rate remains at 3.00
4. The indicators associated with construcion and manufacturing have fallen in recent months
due to the weakness of investment. However, indicators of business expectations remain at
high levels on the optimistic side. GDP is expected to grow 3.9 percent in 2016 and 4.2
percent in 2017.
5. The Board of the Central Bank also approved to maintain the annual interest rates on lending
and deposit operations in domestic currency (not included in auctions) between BCRP and
the financial system, as specified below:
a. Overnight deposits: 3.0 percent.
b. Direct repos and rediscount operations: i) 4.80 percent for the first 15 operations
carried out by a financial institution in the last 12 months, and ii) the interest rate set
by the Committee of Monetary and Foreign Exchange Operations for additional
operations to the 15 first operations carried out in the last 12 months.
c. Swaps: a commission equivalent to a minimum annual effective cost of 4.80 percent.
6. The Monetary Program for the following 12 months will be approved on the Board meetings
to be held on the following dates:
January 12 February 9 March 9
April 6 May 11 June 8
July 13 August 10 September 14
October 12 November 9 December 14
Moreover, in 2017 BCRP will publish its Inflation Reports on the following dates:
March 24 June 16 September 15 December 15