Peru maintains rate as inflation decelerates after floods

    Peru’s central bank left its monetary policy rate steady at 4.0 percent, saying the supply shock that pushed up inflation in the first quarter of the year were now in reverse and inflation expectations had returned to its target range.
     The Central Reserve Bank of Peru (BCRP) cut its rate by 25 basis points in May in response to a slowdown in economic growth after devastating floods in March that left more than a hundred people dead, triggered mudslides, destroyed thousands of miles of roads and damaged croplands.
     Last month the BCRP raised the possibility of further rate cuts and was keeping a close eye on inflation.
      But in today’s statement the bank’s board merely said it was paying attention to new information about inflation and expectations to determine if its policy position had to be more “flexible.”
     In the wake of the flooding, the BCRP lowered its 2017 growth forecast several times and in May forecast 2.5 – 3.2 percent growth compared 3.9 percent growth in 2016.
    Today it said growth expectations were between 2.6 and 3.0 percent and economic activity was around the country’s potential and expected to recover in coming quarters due to higher public spending and higher export prices.
     In addition, business expectations remain optimistic, albeit below the level in the first quarter.
     Peru’s inflation rate decelerated to 3.04 percent in May from 3.69 percent in April and a 2017-high of 3.97 percent in March as prices of some food items fell.
     Excluding food and energy, the annual inflation rate was 2.74 percent, down from 2.79 percent in May and within the central bank’s target range of 1-3 percent.
     BCRP forecast that inflation would converge to its target range during this year.

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