BCRP does not yet plan to reduce the reference rate

The president of the Central Reserve Bank of Peru (BCRP), Julio Velarderecently said in an interview with Bloomberg that he is wary of the risk of easing monetary policy prematurely before inflationary pressures have subsided.

“We have to be sure that inflation is defeated. The worst case scenario for a central banker is to lower the interest rate to raise it again two or three months later,” Velarde said on Friday.

The president of the BCRP expects Peru’s inflation rate to drop to 3% by the end of the year, compared to 8.4% in March. If that scenario plays out, the bank’s next move could be a cut.

“If that projection is maintained, we would not see the need to raise the interest rate. Instead, it would be a rate cut scenario at some point,” he commented.

In this sense, Velarde stressed that the operators are not betting on more rate increases in Peru, but they don’t expect the nation to lead monetary easing in Latin America this year. “Investors expect either Chile or Brazil to cut rates first,” he said.

In addition, he highlighted that the Peruvian inflation rate is on a downward trajectory, but its decline is unlikely to be smooth and there may be months when it will not slow down.

He also stressed that the massive riots that affected the Peruvian economy in December, January and February seem to have come to an end. These events made the GDP receded in the first two months, and affected activities such as mining, agribusiness and tourism.

It should be noted that the BCRP maintained the reference interest rate at 7.75% in March for the third consecutive month. In his latest report, he noted that future adjustments will take into account the macroeconomic impact of elements such as social events.

Data

• CPI. Monthly inflation in March was 1.25%, the highest so far this year, and reached a cumulative 1.77% in the first quarter.
• GDP. National production fell 0.87% in the first two months of the year.