RBC kept benchmark interest rate at 7.5% as inflation moderated

He Board of Directors of the Central Reserve Bank (BCR) Peru, for the second consecutive time, decided to maintain the reference interest rate at 7.75%. However, this decision does not necessarily mean the end of the cycle of interest rate hikes, said the monetary entity.

“Future adjustments in the Reference rate will be conditioned to new information on the inflation and its determinants, including the macroeconomic effects of recent social events,” the Central Bank of Peru said.

In taking this decision, the monetary authority took into account the fact that in February the monthly inflation rate it was 0.29% and inflation without food and energy was 0.27%. There 12-month inflation rate it rose from 8.66% in January to 8.65% in February, while the twelve-month inflation rate excluding food and energy rose from 5.80% in January to 5.87% in February. Both indicators were above the upper limit of the inflation target range.

Also RBC stressed that the significant increase in international energy and food prices since the second half of 2021, accentuated by the international conflictsled to a sharp increase in global inflation rates on a scale not seen for many years and towards levels well above central banks’ inflation targets, both in advanced economies and in the region. In the Peruvian case, this has been accentuated by the social conflicts since December.

“A downward trend is predicted for Annual inflation since March with the return to the target range in the fourth quarter of this year, due to the moderation the effect of international food and energy prices, the reversal of supply shocks in the agricultural sector and a reduction in inflation expectations the rest of the year ; although the March monthly rate is estimated to be higher than previous months due to short-term and seasonal factors,” the monetary entity said.

In addition, year-over-year inflation expectations declined from 4.62% in January to 4.29% in February, above the upper limit of the inflation target range. The inflation expectation for the year 2023 also decreased from 4.73% to 4.50%. Most leading indicators and expectations for the economy picked up in February, although they remain in the pessimistic stretchadded the BCR.

“The ace growth outlook for global economic activity showed a slight improvement, although the overall risk remains due to the effects of Monetary Policy restrictive in advanced economies, the impact of inflation on consumption and international conflicts,” the monetary authority said.

The Board of Directors is particularly attentive to new information relating to inflation and its determinants, in particular the evolution of the inflation expectations and economic activity to consider, if necessary, further changes in the position of the Monetary Policy. “The Board of Directors reaffirms its commitment to adopt the necessary actions to ensure that inflation returns to the target range over the projection horizon,” the BCR said.

The next Board meeting at which the monetary program will be assessed is scheduled for April 13, 2023.

There interest rate It is the equivalent of a value, which is determined by an amount of money and a period of time. For this reason, from economic theory, interest rate is usually defined as the price of money over time. In this sense, Ricardo Cosio Borda, director of the Professional School of Administration and International Business of the Autonomous University of Peru, said that when the reference rate increases, borrowing costs much more.