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Peru. Inflation remained inside the target range in September and the outlook of prices gives room for a policy rate cut

Published on Thursday, October 2, 2014

Peru. Inflation remained inside the target range in September and the outlook of prices gives room for a policy rate cut

YoY inflation remained at 2,7 % in September. We estimate that it will go slightly up in the coming months, but still end the year around the ceiling of the target range. The inflation outlook in 2015 is more benign, considering that even though economic activity is expected to gradually speed up, the output gap will remain negative. This gives the central bank room to cut the policy rate, something that the current output weakness, more intense and persistent than expected, suggests is necessary. If there is a policy rate cut, it would probably be bounded because otherwise it could exacerbate the upward pressure on the exchange rate and damage the balance sheet of those economic agents with currency mismatches. In this context, an eventual monetary policy easing requires to be accompanied by a stronger support to economic activity on the fiscal side.

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