More Peru Hikes Not Imminent

After catching the market by surprise last week with a 25bp rate hike to 1.50%, Peru’s central bank says more tightening is not imminent. “The increase in the rate is preemptive in nature as clear indications of increasing activity, against a backdrop without inflationary pressures, allows for a reduction of monetary stimulus,” the bank says. It adds that future hikes will depend on inflation. Annual inflation stands at 1.85%, within the target range of 1.00%-3.00%. Goldman Sachs believes the decision is acceptable or understandable given its preemptive nature. It expects to see the policy rate at around 3.00%-3.25% by end 2010 and 5.00% by July 2011.