Peru's central kept its monetary policy rate steady at 2.75 percent for the seventh consecutive month and reiterated that its board consider it appropriate to maintain an expansionary policy stance until it is certain that inflation will converge to 2.0 percent target.
The Central Reserve Bank of Peru (BCRP), which has maintained its rate since cutting it in March, also said it expects inflation to remain within the target range in September and confirmed its view from last month that it expects inflation to slowly move to 2.0 percent by the end of this year.
Peru's headline inflation rate eased to 1.07 percent in August from 1.62 percent in July but remained within the central bank's target range of 1.0 - 3.0 percent.
Excluding food and energy, Peru's annual inflation rate eased to 2.04 percent in August from 2.33 percent.
The central bank added that most indicators of business expectations remain on the optimistic side and economic activity, which is below the country's potential, is expected to recover gradually.
Peru's Gross Domestic Product jumped to year-on-year growth of 5.4 percent in the second quarter, the fastest rate since the fourth quarter of 2013, from 3.1 percent in the previous period.
Financial markets don't expect BCRP to raise its rate until next 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 2.75 percent. This decision takes into account the following factors:
i. In August, the YoY rate of inflation and the indicators of trend inflation showed levels within the inflation target range;
ii. The expected YoY rate of inflation was 2.39 percent in August;
iii. Some indicators of economic activity show temporary signs of lower dynamism and economic activity remains below its potential level of growth, and
iv. Greater risk and increased financial stability, both associated with recent commercial tensions, could affect global economic activity.
2. The YoY inflation rate is projected to remain within the target range in September and to gradually converge to 2.0 percent by the end of the year. The Board considers that it is appropriate to maintain an expansionary policy stance until it is certain that this convergence will take place when inflation expectations are anchored in a context in which the level of economic activity is close to its potential level of growth.
3. Recent indicators of inflation and activity reflect the following:
i. Inflation in August showed a rate of 0.13 percent, as a result of which the YoY inflation rate fell from 1.62 percent in July to 1.07 percent in August 2018. Inflation without food and energy recorded a rate of 0.09 percent, as a result of which the YoY rate fell from 2.33 percent in July to 2.04 percent in August, within the target range.
ii. Most indicators of business expectations continue to be on the optimistic side in August. Moreover, a more gradual recovery is observed in indicators of economic activity.
4. 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:
i. Overnight deposits: 1.50 percent.
ii. Direct repos and rediscount operations: i) 3.30 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.
iii. Swaps: a commission equivalent to a minimum annual effective cost of 3.30 percent.
5. The Board will approve the Monetary Program for October on its Meeting of October 11, 2018.
Lima, September 13, 2018"
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