Central Reserve Bank near neutral, cuts policy rate to 4.25%

Summary

The Central Bank’s Board decided in September to reduce the policy interest rate from 4.50% to 4.25%. With this, the rate in real terms stands at 2.07%. It emphasized that the current rate is very close to the estimated neutral level.

Key points

• Key points:
• The reference rate stands at 2.07% in real terms after the cut, the third this year.
• The BCRP mentioned that the current rate is very close to its estimated neutral level.
• The authority expects headline inflation to approach the center of the target range (2% +/- 1%) toward the end of the year.
• Core inflation would remain around the center of the target range over the forecast horizon.
• At BBVA Research, we estimate that the Central Bank will keep the monetary policy rate at 4.25% in the coming months. This neutral monetary stance is consistent with a scenario of no inflationary pressures and economic activity growing at a pace close to potential.

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