Peru’s Central Bank surprises expanding monetary stimulus in November

After a two-month pause, the Board of the Central Reserve Bank of Peru (BCRP) decided to cut the monetary policy rate by 25 basis points in November, from 2,50% to 2,25%.

Key points

• Key points:
• There is a change of tone in the BCRP announcement. This month, the mention to a reversal in primary activity from last month has disappeared and October data shows that public investment falls again.
• The decision surprised market analysts given that 10 of them expected the rate to stay at 2,50% while only 6 inclined in favor of a 25bp cut, according to Bloomberg.
• At BBVA Research, we expected two 25bp cuts in the following months, before the end of 2020H1, but were surprised by the early start.
• We believe this rate cut is still insufficient given our forecast of economic activity for the following quarters, which is consistent with the downward bias the Central Bank has on inflation and domestic demand. Thus, we maintain the policy rate will reach 2% before the end of 2020H1 in our baseline scenario.

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