Thursday, January 6, 2022

Peru raises rate 6th time, normalization to continue

     Peru's central bank raised its key interest rate for the sixth month in a row and said it expects to continue normalizing its monetary policy stance in coming months based on current information.
     The Central Reserve Bank of Peru (BCRP) raised its reference rate by another 50 basis points to 3.0 percent and has now raised it a total of 2.75 percentage points following rate hikes in August, September, October, November and December last year, and today.
     Unlike recent months, the bank's board did not say it would maintain the current expansionary monetary policy stance for some time but said it was attentive to new information regarding inflation expectations and economic activity, and would "consider, if necessary, modifications in the monetary policy position that guarantee the return of inflation to the target range."
     After slowing in November to 5.66 percent, Peru's headline inflation rate picked up speed again in December to 6.43 percent, the highest rate since January 2009.
     Excluding food and energy, inflation was 3.24 percent in December and also above the central bank's target range of 2.0 percent, plus/minus 1 percentage point.
     BCRP said it expects inflation to return to its target range in the fourth quarter of this year, a slight change to its forecast in December when it said it expected inflation to return to the target range in the second half.
     The central bank said inflation expectations for 2022 had risen further to 3.7 percent from 3.5 percent and most indicators of expectations about the economy remain on the pessimistic side, the bank added.
     Last month the central bank's president, Julio Velarde, said in a press conference he expects economic growth in 2022 of 3.4 percent along with inflation of 2.9 percent.
     Peru's gross domestic product grew 11.4 percent year-on-year in the third quarter of 2021 and Velarde raised his estimate for 2021 growth to 13.2 percent from an earlier 11.9 percent.



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