Peru | BCRP surprises by pausing the monetary normalization process

Summary

In its October meeting, the Board of the Central Bank decided to maintain the policy rate at 5.25%, surprising the consensus that had anticipated a further 25-basis-point cut. The monetary policy stance, understood as the ex-ante real reference rate, remains contractionary.

Key points

• Key points:
• The pause aligns with the reference made in the statement to the volatility in international financial markets and the increased risks stemming from international conflicts.
• The policy rate now stands at 2.82% in real terms (September: 2.81%).
• The authority expects inflation to remain close to the centre of the target range (2% +/- 1%) in the following months, despite a temporary increase in the fourth quarter due to a low base effect.
• At BBVA Research, we expect the Central Bank to resume its rate cuts before the end of the year, thus maintaining a short-term interest rate differential between the sol-dollar similar to the current one, while easing the monetary position. We condition our expectation of rate cuts on the absence of pressures in the foreign exchange market.

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