BCRP pauses bullish cycle and maintains the reference rate at 7.75%

The Board of Directors of the Central Reserve Bank of Peru (BCRP) agreed to keep the benchmark interest rate at 7.75%, after 17 months of consecutive increases. “This pause does not necessarily mean the end of the cycle of interest rate hikes. Future adjustments in the reference rate will be conditioned to new information on inflation and its determinants, including the macroeconomic effects of recent social events,” warned the monetary authority.

The first factor that influenced the BCRP’s decision is that the 12-month inflation rate increased from 8.46% in December to 8.66%, due to higher prices for locally produced food, while the inflation rate without food and 12-month energy increased from 5.59% to 5.80% in January. Both indicators were above the upper limit of the inflation target range.

This situation, explains the entity, has been accentuated by international conflicts and “has led to a sharp increase in inflation rates at the global level in magnitudes not seen in many years and to levels significantly higher than the inflation targets of central banks , both from advanced economies and from the region”. However, “in the case of local inflation, this has been accentuated by social conflicts since December,” he adds.

The BCRP also projects a downward trend in year-on-year inflation since March with a return to the target range in the fourth quarter of this year, due to the moderation of the effect of international food and energy prices, the reversal of supply shocks in the agricultural sector and a reduction in inflation expectations for the rest of the year.

Inflation and Growth Outlook

The 12-month inflation expectations rose from 4.30% in December to 4.62% in January, above the upper limit of the inflation target range. However, most of the leading indicators and expectations about the economy deteriorated in January, so it remains in the pessimistic range.

Regarding the international scenario, he specifies that the prospects for growth in world economic activity have shown a slight improvement, although the global risk remains due to the effects of restrictive monetary policy in advanced economies, the impact of inflation on consumption and international conflicts.

Interest rates of operations in national currency

Finally, the board of directors agreed to maintain the following interest rates for BCRP operations in national currency with the financial system under the over-the-counter modality:

• Overnight deposits: 5.25 per year.
• Direct repo operations of securities and currency, and Monetary Regulation Credits: i) 8.25% per annum for the first ten operations in the last three months; and ii) the interest rate set by the Monetary and Exchange Operations Committee, for additional operations to these ten operations in the last three months. In addition, the Monetary and Exchange Operations Committee may establish higher rates based on the amount of the operations.