Peru | Policy rate unchanged, but the tone is somewhat more restrictive

Summary

The Central Reserve Bank of Peru kept the interest rate at 4.25% but adopted a more restrictive tone. It removed the conditionality for future adjustments, increasing the probability of a rate hike this year. Annual inflation rose to 4.4% in August, and 12-month expectations stand at 3.1%.

Key points

• Key points:
• Year-on-year inflation increased from 4.1% in July to 4.4% in August, although inflation excluding food and energy fell from 4.6% to 4.5%. The BCRP attributes the rise to a base effect.
• Twelve-month inflation expectations rose from 3.0% to 3.1%, placing them slightly above the upper limit of the Central Bank's target range.
• The ex-ante real rate stands at 1.20%, below the previous month's 1.24% and further from the estimated neutral rate of around 2%, indicating a loosening of monetary policy.
• The El Niño phenomenon remains the main upside risk for food prices towards the end of the year and early 2027.

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