Peru holds rates at 4.25%; inflation pressures to drop
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The Peruvian Central Bank (BCRP) maintains an inflation targeting policy that aims to keep inflation between 1% and 3%. There was speculation among investors on whether or not the reference rate would be increased to curve the increasing inflation, which had further increased to 3.74% from its 3.53% value in August.
On October 11, 2012, the BCRP held its lending rate steady at 4.25%. The brief statement released mentioned that the increase in the twelve month inflation was mainly attributable to perishable goods due to adverse weather conditions. Excluding food and fuels, the inflation increase in September was negligible, at -0.04%. Products such as potatoes and some citrics were the culprits of the inflation spike and the BCRP expects inflation to return to the target range in the long term. It further stated that current and forward looking indicators pointed to the economy having stabilized at the long term sustainable growth rate, though external debt indicators seem weak.
The actions by the BCRP to maintain rates steady is positive for investors in iShares MSCI All Peru Capped Index Fund (EPU) since it shows the Central Bank’s confidence in the Peruvian economy’s long term performance and recognizes that short term negative effects will disappear in the long run.