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Wednesday, February 1, 2023

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BCRP raises the benchmark interest rate to 2.50% to contain inflation

The new directory of the Central Reserve Bank of Peru (BCRP) agreed to raise the benchmark interest rate by 50 bps. to 2.50%, in a decision that continues with its expansionary monetary policy, but that does not necessarily imply “a cycle of successive increases” for said rate.

To make this decision, the issuing entity considered that the twelve-month inflation rate fell from 5.83% in October to 5.66% in November, temporarily placing it above the target range due to factors such as price increases. international food and fuel inputs, as well as the exchange rate. In addition, the inflation rate excluding food and energy for twelve months stands at 2.91% in November.

Along these lines, the BCRP projected that inflation will return to the target range in the second half of next year, due to the reversal of the effect of transitory factors on the inflation rate (exchange rate, international prices of fuels and grains) since economic activity will still be below its potential level.

“Twelve-month inflation expectations increased from 3.6% in October to 3.7% in November and for the year 2022 they are located at 3.5%, above the upper limit of the inflation target range. Most of the indicators of expectations about the economy have deteriorated in November and some are in the pessimistic range, ”the BCRP sent.

The institution also noted that world economic activity is recovering, “although at a slower pace due to outbreaks of COVID-19 infections and the appearance of new variants and bottlenecks in the global supply of goods and services.”

“The recovery process is expected to continue in the coming quarters as vaccination in the world and significant fiscal stimulus programs in developed countries continue to advance,” he said.

Finally, it guaranteed that its board of directors is especially attentive to new information regarding inflation expectations and the evolution of economic activity to consider, if necessary, changes in the monetary policy position.

“With the available information, it is considered convenient to maintain the expansionary monetary policy position for a prolonged period, through the gradual withdrawal of the monetary stimulus. The Central Bank will continue to carry out all the necessary actions to sustain the payment system and the flow of credits in the economy. The financial markets have continued to show volatility in a context of uncertainty and the actions of the BCRP were aimed at attenuating these volatilities, ”said the BCRP.

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