Peru | BCRP reduced its rate; we perceive that additional cuts will continue to be limited

Summary

In its February decision, the Board of the Central Bank decided to reduce the reference rate to 6.25% 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, relaxed somewhat, but remains in restrictive territory.

Key points

• Key points:
• The policy rate now stands at 3.61% in real terms (January: 3.67%).
• The Bank noted that inflation showed a marked decreasing trend from June 2023 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 continue its downward trend in the forecast horizon. The risks associated with climatic factors stemming mainly from the El Niño phenomenon are now reduced.
• One year ahead inflation expectations decreased from 2.8% in December to 2.6% in January.
• We consider that although the conditions are in place for the BCRP to continue cutting its monetary policy rate, this process would continue in a cautious manner: possibly as it has been doing until now with reductions of 25 basis points on each occasion.

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