Published on Tuesday, November 1, 2022

Peru | The global battle against inflation

Central banks have been waging an intense battle against accelerating inflation. This effort has not been without controversy and debate since it has involved sharp increases in interest rates that will slow down growth.

Key points

  • Key points:
  • Central banks seem willing to err on the side of raising interest rates “too much” and risking a recession against “doing too little”. And surely they are right.
  • Some experiences of the 1970s and early 1980s showed that premature reversals of monetary adjustments led to environments with persistently high inflation or subsequent more severe monetary restrictions that generated significant economic contractions.
  • It should be noted that several central banks of emerging economies, such as the Central Bank of Peru (BCRP), had the wisdom to start their rate hike cycles early and today they are about to complete that process.
  • In the case of Peru, it seems that containing inflation will only require a "soft landing" of the economy. However, in a context in which the most trending measures of inflation remain high and expectations are somewhat unanchored, it is most likely that interest rates will remain at relatively high levels during 2023.

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