Thursday, July 10, 2014

Peru cuts rate 25 bps, not beginning of series of cuts

    Peru's central bank cut its benchmark interest rate by 25 basis point to 3.75 percent and said it would consider additional easing measures though the rate cut did not herald the beginning of a series of rate reductions.
    The Central Bank of Peru (BCRP) last cut its rate in November 2013 in what it described as a preventative move and today also reduced its rates on lending and borrowing operations, with the overnight rate now at 2.55 percent, the rate on direct purchases of securities and rediscount operations at 4.55 percent and the rate on temporary swaps at 4.55 percent.
    The central bank said the benchmark rate was compatible with inflation converging to the bank's target range in 2014 and 2.0 percent in 2015.
    "Inflation is projected to initially remain near the upper limit of the target range by the lingering effect of supply shocks and subsequently tend to 2 percent," BCRP said.
    Peru's inflation rate eased to 3.45 percent in June from 3.56 percent in May. BCRP targets inflation at a 2.0 percent midpoint, plus/minus one percentage point.
    Peru's economy remains below its potential growth rate, but the central bank said this is expected to be temporary.
    On Wednesday Julio Velarde, president of the central bank, told the Wall Street Journal said the country's economy is expected to rebound strongly in the second half of the year thanks to higher mining production and investments in new infrastructure projects.
    These projects are expected to lift economic growth to about 6 percent in 2015 and almost 7 percent in 2016. For 2014 the central bank is forecasting growth of 5.5 percent.
    Velarde also said in the interview that inflation was projected to fall below 3 percent before the end of this year and reach 2 percent in 2015.



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