The Central Reserve Bank of Peru (BCRP) kept its benchmark interest rate unchanged at 4.25% in September, citing monthly inflation of 0.07% in August and core inflation, which excludes food and energy, of just 0.02%.
Annual inflation rose from 4.1% in July to 4.4% in August, the bank said, largely because of a base effect linked to the negative monthly inflation recorded in August last year. Core annual inflation, excluding food and energy, eased slightly from 4.6% to 4.5% over the same period.
Why inflation strayed from target
The BCRP said the deviation of inflation from its target range was mainly driven by higher fuel prices and their knock-on effect on transport costs in March and April. Peru's central bank targets annual inflation of between 1% and 3%.
Stripping out the transport category, underlying inflation stood at 1.8% year-on-year, a level that has remained below 2% since April last year.
Rate held steady through 2026
During 2025, the BCRP cut its key rate three times, in January, May and September, each time by 25 basis points. It has made no changes so far this year, leaving the rate at 4.25%.
Inflation expectations edge higher
Twelve-month inflation expectations rose from 3% in July to 3.1% in August, slightly above the upper limit of the bank's target range.
The BCRP projects that both annual inflation and core inflation will return to the target range and settle around 2% over its projection horizon, as the effects of supply shocks fade. However, it warned that the El Nino weather phenomenon and geopolitical tensions in the Middle East could have more lasting effects on prices.
Economic activity and global risks
Leading indicators of economic activity continued to show solid performance through August, the bank said. In its own survey, all indicators of current business conditions improved from the previous month, while expectations indicators stayed in optimistic territory, though with some moderation.
Global risks remain elevated, the BCRP noted, reflected in greater volatility in financial markets and international oil prices. Uncertainty persists around tensions in the Middle East, compounded by other geopolitical and trade risks. Even so, the bank said global growth prospects remain positive and that Peru continues to benefit from favourable terms of trade.
The bank's board said it remains especially attentive to new information on inflation and its drivers, and reaffirmed its commitment to taking the steps needed to bring inflation back within the target range over the projection horizon.
