Peru. Central Bank cuts policy rate in September by 25bp
Published on Friday, September 12, 2014
Peru. Central Bank cuts policy rate in September by 25bp
The policy rate was cut to 3,50%. The central bank is trying to provide additional stimulus to economic activity because output is weaker than expected, in a context of what it perceives to be some room on the side of prices. We estimate the effectiveness of this rate cut will be limited because the transmission mechanism through the traditional monetary channel is impaired. On the contrary, it could feed depreciation pressures on the PEN, thus risking higher inflation or even a negative impact on economic activity through balance sheets with currency mismatches. Despite all of this, the tone of the statement accompanying yesterday’s decision suggests that we cannot rule out a possible further cut in the policy rate before year-end. If this is the case, however, we think this cut would be limited because we anticipate that the exchange-rate issue will gain importance in the coming months as the beginning of the cycle of US interest-rate hikes approaches.
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