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Peru Central Bank cuts interest rate for first time in over two years

Staff Writer |
At its May 11 meeting, the Central Bank decided to cut the reference rate by 25 basis points to 4.00%.

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The Bank had previously held the rate at 4.25% for 14 months, and market expectations were mixed as to whether it would make a change to policy at its May meeting.

The decision comes shortly after April inflation data came in lower-than-expected and as economic momentum is weak following disastrous weather woes. While supply shocks in Q1 from the coastal El Niño phenomenon caused inflation to rise sharply, prices pressures should ease in the coming months.

Regarding economic activity, policy makers struck a rather optimistic tone, commenting that the slowdown should be temporary. The Bank sees GDP growing between 2.5% to 3.2% this year.

The Central Bank struck a relatively neutral tone regarding forward guidance, saying that upcoming monetary policy decisions will depend largely on incoming inflation data.The next monetary policy meeting is scheduled for 8 June.

FocusEconomics panelists are still taking the latest decision into account and currently see the monetary policy rate at 4.23% for the end of 2017.

For 2018, the panel projects an average rate of 3.44% at the end of the year.