By CentralBankNews.info
    Peru’s central bank raised its monetary policy interest rate by a further 25 basis points to 3.75 percent to curb inflationary expectations that exceed its target range and said it was ready to raise rates further if necessary to bring inflation back to its target range.
    The Central Reserve Bank of Peru (BCRP) has now raised its rate by 50 basis points this year following a first rate hike in September. Although it maintained the rate in both October and November, it always underscored that it was ready to raise rates again.
    In addition, the bank’s chief economist Adrian Armas told reporters last month that the BRCP might raise its rate if inflation rises more than expected and that the renewed decline in the sol’s exchange rate would impact inflation.
    Inflation jumped to 4.17 percent in November from 3.66 percent in October, well above the central bank’s target range of 1-3 percent around a midpoint of 2.0 percent.
     Inflation has been fanned by depreciation of the sol currency with its exchange rate against the U.S. dollar reaching lows not seen since 2006 despite intervention by the central bank.
    The sol started falling in early 2013 but has stabilized in the last two weeks after hitting 3.38 to the dollar in late November compared with an exchange rate of 2.5 to the dollar in January 2013.
    Today the sol was trading at 3.38 to the dollar, down 11.5 percent this year and down 26 percent since the start of 2013.
    In today’s statement, the central bank said recent data showed that economic activity was below potential but at a higher growth rate in the fourth quarter and by 2016 the economy should be growing at a rate that is similar to the country’s potential.
    Peru’s potential growth rate is estimated at 4.5 percent but the country has been hit hard by the sharp drop in the price of copper, one of its main exports, a shift that has been reflected in the decline in the sol’s exchange rate.

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