This morning Julio Velarde, president of the Central Reserve Bank, indicated that our country is going through the longest period that has been seen in the last 20 years with regard to inflation. Even the renowned banker pointed out that “we don't know how we will deal with this”.
“Before the invasion of Ukraine, we already had the price increase caused by inflation. However, we believed that we could return from here in late 2022 to the situation we had before. Now this is postponed for another year. We don't know if we will achieve this in the first half of 2023. We have already failed to achieve our goals five times in the last 20 years,” he commented during the International Conference for the Centennial of the BCRP.
“Uncertainty is a reality. Roberto Campos Neto (president of the Brazilian Central Bank) mentioned April as the peak of inflation in Brazil, we don't know yet, but possibly the peak of inflation in our country is there,” he added.
Although various studies have been done to counteract inflation, there are various factors at the global level that do not allow this to recede, on the contrary the peaks of increase will continue to occur on large scales.
“It should be borne in mind that sowing in Ukraine is in April, then we will see what the situation is like and what is the effect on prices. Lately prices have been increasing, partly due to the mechanisms of transmission in international markets of the price of wheat,” he said,” he said.
“We have increased this target eight times and we estimate that our normal rate is 1.5%, we were hoping to get closer to this. It depends on the projections. It is a difficult situation, because we are used to a low rate of inflation and since we have been outside our expected range for so many months we don't know how economic agents are going to react,” said Velarde.
In the same context, the president of the BCR added that by February “we already had 63% prices above 1.5%” (the allowed rate). Even the BCR's Macroeconomic Expectations Survey, conducted with analysts and companies, indicates that by the end of this year inflation will be between 3.8% and 4%.
“We don't know how everything is going to turn out yet. We have increased eight times (the benchmark rate) and will probably continue to increase. It's a difficult situation because we were used to a low inflation rate. The idea that the rise in (interest) rates has to be more substantial at the beginning, that is done to fight inflation,” he said.
Despite all this, Julio Velarde is optimistic and assures that the Reserve Bank of Peru will continue to work to combat this inflation that is hugely damaging all Peruvians.
“We need to inform citizens that we are constantly going to fight against rising inflation. We have been quite successful in combating inflation, since we adopted the objective of a negative level, but there is a countercyclical effect and the level of inflation must be reduced in that period. With the pandemic, debt had to increase when needed and that caused higher inflation,” he said.
The president of the BCR highlighted that Peru's fiscal policy was quite positive, since a deficit of 8.2% of GDP in 2020 ended up at 2.8% in 2021, which gave us more room for action than other countries.
“Managing to put an end to hyperinflation (of the 80s and early 1990s) gave us a basis for successfully pursuing fiscal and monetary policies,” he concluded.
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