Peru Cuts Rate as Policymakers See Inflation Under Control

Peru's central bank, the BCRP, has cut its policy rate by 25 basis points to 5.25%, signaling its confidence in maintaining inflation within the target range. The decision, announced on September 13, 2024, reflects the bank's assessment that inflation is under control and is expected to remain close to the center of the target range in the coming months. This move aligns with the bank's data-dependent approach to monetary policy, as it continues to monitor inflation and its determinants closely.



The BCRP's decision to cut the policy rate comes amidst a backdrop of moderating inflation expectations and a stable economic outlook. One-year ahead inflation expectations decreased from 2.49% in July to 2.44% in August, remaining within the inflation target range of 2% +/- 1%. This decline in inflation expectations, coupled with a real ex-ante reference rate that remains in restrictive territory, has paved the way for the central bank to ease monetary policy.

The BCRP's policy rate cut is also supported by a stable economic outlook. GDP growth is projected to be 3.1% in 2024, driven by private consumption and investment. The fiscal deficit is expected to moderate in the remainder of the year, driven by a gradual improvement in tax collection and high export prices. This stable economic outlook, combined with anchored inflation expectations and the absence of demand pressures on prices, has allowed the central bank to maintain its data-dependent approach to monetary policy.

The BCRP's decision to cut the policy rate by 25 basis points is a testament to the bank's confidence in its ability to maintain inflation within the target range. As the bank continues to monitor inflation and its determinants, it is well-positioned to adjust monetary policy as needed to ensure that inflation remains under control. With a stable economic outlook and moderating inflation expectations, the BCRP's policy rate cut is a positive sign for the Peruvian economy and a reflection of the bank's commitment to maintaining price stability.