Peru | BCRP cuts rate again in January and maintains data-dependent tone going forward

In its January decision, the Board of the Central Bank decided to reduce the reference rate to 6.50% but maintained that this does not imply a cycle of successive interest rate cuts. The monetary policy stance, understood as the real ex-ante reference rate, tightened somewhat and remains in restrictive territory.

Key points

• Key points:
• The policy rate now stands at 3.67% in real terms (December: 3.60%).
• The Bank noted that inflation showed a marked decreasing trend from June to December, to the extent that some of the transitory effects on inflation due to restrictions on the supply of certain foods have dissipated.
• The authority expects inflation to return to the target range (2% +/- 1%) in the coming months, although there are risks associated with climatic factors stemming mainly from the El Niño Phenomenon (FEN).
• One year ahead inflation expectations decreased from 3.2% in November to 2.8% in December.
• We consider that the Bank will remain in “data-dependent” mode in the coming months. If the weather anomalies continue to moderate, their impacts on prices continue to be limited, the forecasts for coastal El Niño maintain the more positive tone of the last ones, and exchange rate pressures remain absent, we would not be surprised if the Central Bank lowers its interest rate again in February, looking to support the recovery of economic activity.

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