Peru | Peruvian central bank cuts again its policy rate by 25bp, without surprises

The Central Bank cut today its key rate by 25 basis points, to 7,25%, without surprises despite FX volatility. Thus, the monetary policy normalisation process that began last month continues. The BCRP is in data-dependent mode. We believe the policy rate will move further down in the short-term.

Key points

• Key points:
• The policy rate normalisation process that began last month continued in October amid declining headline and core inflation, inflation expectations close to the Central Bank’s target range, and indicators (both leading and expectations) that keep suggesting that economic activity remains weak in the second half of the year.
• The statement that was released announcing today’s decision was very similar to last month’s. Based on it, we understand that the Central Bank remains in a data-dependent mode because it reiterated that [the 25bp cut] “… does not necessarily imply a cycle of successive interest rate reductions” and that “future adjustments in the policy rate will be conditional on incoming data regarding inflation and its determinants”.
• Our forecasts for inflation, economic activity, the foreign exchange, and the Fed’s policy rate, as well as El Niño phenomenon current projections, suggest that there is need and room to keep lowering the Peruvian Central Bank’s key rate.
• In this context, and taking into account the data-dependent mode in which the Central Bank is, we believe the policy rate will move further down in the short-term, though in small magnitudes due to El Niño latent risk on prices.

Authors

Geographies

Topics

Tags