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Briefing

Peru: Monetary Policy

Appears in: Latin America, Macroeconomy, Peru, Monetary Policy and Inflation

Critical Issues

Background:

After a sharp slump in economic performance at the end of 2008, the government decided to enact a two-year fiscal stimulus program of US$1.4 billion, or 1.1% of GDP, to counteract the decline in private investment due to the 2008-09 global economic crisis. The fiscal deficit in 2009 was 2% of GDP, and is expected to be 1.2% in 2010, according to Peru’s Ministry of Finance. Along the public infrastructure projects included in the program, Peru also created incentives for non-traditional exports and allocated increased funds for social service programs.

The Peruvian central bank (BCRP) also contributed to the recovery efforts by starting an easing cycle in February 2009, reducing the benchmark interest rate to a low of 1.25% as part of the stimulus measures. Sharp disinflation and declining inflation expectations, together with a weaker economy, had led the central bank to lower rates aggressively.

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