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Peru trims policy rate to 4%; inflation expected to hit target range
By Wendy Van Sickle
Columbus, Ohio, May 12 – The board of the Central Reserve Bank of Peru decided to reduce its monetary policy interest rate by 25 basis points to 4%, according to a bank notice.
The bank said the rate is consistent with its forecast that inflation will reach the target during 2017 and remain within the target range in 2018.
The rate cut takes into account the following, the bank added:
• The reversal of supply shocks that affected inflation in the first quarter;
• Inflation expectations in 12 months are temporarily close to the upper band of the inflation target range;
• Growth of domestic economic activity has continued to slow in recent months, with the output showing a pace below its potential growth level, but economic activity is expected to recover in the following quarters on increased government spending and higher export prices, and
• The world economy continues to show gradual recovery, although some uncertainty remains about developed countries’ policies.
In April, inflation was at negative 0.26%, which the bank said resulted from significant reversal in some food prices.
The year-to-year rate of inflation fell to 3.69% in April from 3.97% in March.
Inflation without food and energy was at 0.09%, as a result of which the year-to-year rate increased to 2.79% in April from 2.72% in March.
Business indicators recovered in April. In line with this, GDP is expected to grow 2.5% to 3.2% in 2017.
The board also trimmed the rate for overnight deposits 2¾% and the rate for direct repos and rediscount operations to 4.55% for the first 15 operations carried out by a financial institution in the last 12 months. Each of these cuts reflects a reduction of 25 bps.
The board will meet next on June 8.
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