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This month, the Central Reserve Bank (BCR) left Peru’s benchmark interest rate unchanged for the third month in a row.
interest rate The benchmark is used as a mechanism to control high inflation, but is it too early to start reducing it?
BCR President Julio Velarde says it is too early to loosen Peru’s monetary policy without fully curbing inflationary pressures.
“The worst-case scenario for the central bank is to cut the interest rate only to raise it again in two or three months (…) We need to be sure that inflation failed,” he said in an interview with Bloomberg news agency.
Velarde predicts that inflation, which stood at about 8.4% until March, will slow to 3% by the end of the year. If this scenario is confirmed, then the rate will be reduced, the head of the RBC pointed out.
“If this forecast is confirmed, we will not see the need to increase interest rate (…) instead there would be a rate cut scenario at some point,” he told Bloomberg.
The BCR President has indicated that inflation is already on a downward trajectory but is unlikely to fall smoothly, and points out that there may even be months in which it does not slow down.
Although analysts do not expect further growth interest rates Peru is also not expected to take the lead in monetary easing in Latin America this year.
For Velarde, the countries expected to see interest rate cuts are Chile and Brazil.
What does an interest rate hike mean?
Let’s remember that central bank defines a reference interest rate as one that is set for “the purpose of establishing a level of reference interest rate for interbank transactions that affects the transactions of financial institutions with the public.”
By raising the BCR base rate, the interest rates applied bankssavings banks and financial companies in the loans they offer, that is, borrowing is more expensive.
But not only does this mean an increase in the cost of credit, a higher base interest rate also results in an increase in the yield offered by banks and other financial institutions to those who invest their money.
Source: RPP
I’m Liza Grey, an experienced news writer and author at the Buna Times. I specialize in writing about economic issues, with a focus on uncovering stories that have a positive impact on society. With over seven years of experience in the news industry, I am highly knowledgeable about current events and the ways in which they affect our daily lives.