The economic challenge of the BCR: between monetary stability and economic reactivation

The Central Reserve Bank (BCR) has a constitutional mandate to preserve monetary stability, with one of the fundamental pillars of this task being price stability. To achieve this objective, the BCR applies various tools, among which stands out the determination of its reference interest rate, which aims primarily to anchor inflation expectations in the country. However, it is important to note that the Constitution does not establish as an obligation of the BCR the reactivation of the economy, but rather the preservation of monetary stability. High inflation represents a significant risk to the economy, as it generates uncertainty, affects the spending plans of families and businesses, reduces the real incomes of the population, and impacts more severely on the most vulnerable sectors, such as the poorest. In order to avoid an inflationary spiral, the BCR has been gradually adjusting its interest rate from August 2021 to January 2023, reaching a level of 7.75% annually. However, in the face of inflation deceleration and other factors such as economic recession and the stabilization of certain indicators, the BCR has begun to reduce its interest rate, setting it at 5.75% in the month of September. It is important to highlight that this is not the first time that the discussion about the role of the BCR in economic reactivation has been raised. In October, the then Deputy Minister of Economy, Juan Pichihua, stated that a high interest rate is not a stimulus for economic recovery. This stance contrasts with that of the current head of the Ministry of Economy and Finance (MEF), José Arista, who has urged the BCR to be more proactive in reducing the real interest rate, arguing that its current level hinders the dynamization of the economy at the desired speed. The controversy surrounding monetary policy and its impact on economic reactivation is framed in a context of political instability that has contributed to the country's weak economic performance. The lack of consensus and the uncertainty generated by political conflict have limited the Government's ability to implement effective measures to boost economic growth. In this sense, the responsibility also falls on governmental authorities, who must ensure the creation of a conducive environment for economic development. The recent reduction in the BCR's interest rate has begun to have repercussions on the interest rates of the financial system, which were in the process of reduction. However, this trend could be halted in light of the recent downgrade in Peru's credit rating by S&P Global Ratings, which included six financial institutions in the country. This decision will result in a higher cost of external financing for these entities, which could translate into more expensive loans for the population. In conclusion, the current economic situation reflects the complex interaction between monetary policy, political stability, and the Government's ability to promote economic growth. It is essential that the relevant authorities work in a coordinated and coherent manner to overcome economic challenges and create the necessary conditions for sustainable development. The ball is in the court of the MEF, which must take on a proactive role and establish clear strategies that promote economic recovery and job creation in the country.