Macroeconomic Forecast Peru

The Banco Central de Reserva del Perú (BCRP) hiked interest rates for the second time this year by 25bps to 5.50% on April 10 as inflation exceeded the 5.0% y-o-y mark in March. We had previously suggested that the BCRP would be inclined to keep rates on hold in light of the recent sol appreciation. Ballooning food prices, however, have pushed the bank's monetary policy council into hiking mode and seen the BCRP raise minimum reserve requirements on banks to 8.5% from 8.0%. The marginal sol-denominated deposit rates were also raised to 25% from 20%, and to 45% from 40% on foreign currency deposits. We expect interest rates to remain on hold going forward, as these measures, along with fuel and import tax cuts will see inflation decline towards 3.0% by end-2008.

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