Peru cuts rate 2nd time by 100 bps as inflation falls

     Peru's central bank lowered its policy rate for the second month in a row, noting inflation is expected to approach the lower bound of its target range while economic activity is severely affected by the simultaneous temporary shock to supply and demand, and the risks to global economic activity have risen, which includes the possibility of a global recession in the first half of this year.
     The Central Reserve Bank of Peru (BCRP) cut its reference rate by another 100 basis points to 0.25 percent and has now cut it by 200 basis points this year following an unscheduled cut on March 19, less than a week after it left the rate steady at its regular policy meeting on March 12.
      BCRP said it was paying close attention to inflation in order to continue expanding monetary stimulus in different ways.
     The central bank said headline inflation in March eased to 1.8 percent from 1.9 percent in February while inflation excluding food and energy fell to 1.7 percent from 2.3 percent.
      On March 12 BCRP still expected inflation of around 2 percent over its forecast horizon but today it lowered this forecast for inflation to approach the lower bound of its target range.
      BCRP targets inflation of 2.0 percent, plus/minus 1 percentage points.
      The central bank, which has been injected liquidity into the banking system via repurchase agreements, added it would continue to support the payments system and had carried out liquidity operations in March and April.


       The Central Reserve Bank of Peru issued the following statement:

1. "The Board of Directors of the Central Reserve Bank of Peru (BCRP) decided to lower the reference interest rate by 100 basis points, from 1.25 to 0.25 percent, in light of the following developments:
   
   1. Annual inflation is expected to approach the lower bound of the target range over the forecast horizon due to a significant weaking in domestic demand.
   2. Monthly inflation was 0.65 percent in March; consequently, year-on-year inflation decreased from 1.9 percent in February to 1.8 percent in March. With monthly inflation excluding food and energy at 0.42 percent in Februrary, the year-on-year figure decreased from 2.3 percent in February to 1.7 percent in March.
   3. One-year ahead expected inflation as of March was 2.0 percent.
   4. Economic activity is being severely affected by simultaneous temporary supply and demand
      shocks.
   5. The risks to global economic activity have increased, including the possibility of a global
      recession in the first half of the year.
2. The BCRP will continue to take the necessary steps to support the payments system and the credit chain. In this context, the BCRP has implemented liquidity easing operations such as security and currency repos in March and so far in April. The BCRP has several additional liquidity injection instruments.
3. The Board pays close attention to new information on inflation and its determinants to continue expanding monetary stimulus under different modalities.
4. In the same meeting the Board also decided to reduce the following interest rates on BCRP discount window operations in domestic currency:
   
   1. Overnight deposits: 0.15 percent per year.
   2. Direct security/currency repo and rediscount operations: 0.50 percent per year.
5. The BCRP Board’s next monetary policy meeting will take place on May 7, 2020."
   
   
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