Thursday, July 13, 2017

Peru cuts rate another 25 bps as inflation decelerates

     Peru's central bank lowered its monetary policy rate by 25 basis points for the second time this year as inflation and inflation expectations declined further while economic activity remains below the country's potential.
     The Central Reserve Bank of Peru (BCRP) has now cut its policy rate by 50 basis points this year to 3.75 percent following a cut in May in response to slower economic growth following devastating floods in March that left more than one hundred people dead, triggered mudslides, destroyed thousands of miles of roads, and damaged croplands.
      The bank's board said it was particularly attentive to new information about inflation and expectations, the reversal of supply shocks that had pushed up inflation in the first quarter along with the recovery of private and public spending in order to consider further changes to its monetary policy.
     Peru's inflation rate fell to 2.73 percent in May, continuing the deceleration from 3.97 percent in March when prices were pushed up following the rains and floods.
    Excluding food and energy, inflation eased to 2.38 percent in June from 2.54 percent in May, within the central bank's target range of 1-3 percent, and BCRP forecast that inflation would remain within this range during 2017 and 2018.
     Last month the central bank in its quarterly report again lowered the forecast for economic growth this year to 2.8 percent from 3.5 percent and said today the range for optimistic forecasts for growth were between 2.5 and 3.0 percent.
     The outlook for growth in 2018 was raised to 4.2 percent from 4.1 percent.
     In the first quarter of this year Peru's Gross Domestic Product decelerated to 2.1 percent year-on-year from 3.0 percent in the previous quarter.
     The 2017 forecast for inflation was trimmed to 2.2 percent from a previous 2.4 percent and inflation in 2018 was seen at 2.8 percent.
     Despite the floods, Peru's sol has been trending firmer this year and was trading at 3.24 to the U.S. dollar today, up 3.4 percent this year.


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