PERU: Benign Inflation Backdrop Keeps Door Open To Final BCRP Rate Cut
Oct-02 13:05
- Yesterday’s CPI data confirmed that inflation pressures remain well contained in Peru, with the headline rate (1.36% y/y) remaining in the lower half of the 1-3% target range for a 10th consecutive month in September, and core inflation also holding below 2% for a seventh month (1.81% y/y in Sept vs. 1.76% in Aug).
- Although inflation is likely to edge up from here on base effects, it is expected to remain below 2% at year-end. This could keep the door open to a further BCRP rate cut, although several analysts say that with the policy rate near neutral, there is little urgency to cut. Indeed, Governor Velarde said recently that there was no need to be aggressive with rate cuts.
- Following the data, Goldman Sachs sees headline inflation rising moderately to 1.7% at year-end. JP Morgan also expects headline inflation to edge closer to 2% by year-end, although with risks still tilted to the downside. Nonetheless, they expect the BCRP to keep its policy rate unchanged ahead, as it currently hovers near a neutral stance.
- In contrast, BBVA still sees scope for a final rate cut by December, amid a decline in inflation expectations, as well as a moderate slowdown in growth. Similarly, Itaú anticipates an additional 25bp rate cut this year to 4%. However, with the output gap largely closed and the policy stance only slightly restrictive, they believe there is limited pressure to cut at next week’s meeting, scheduled for Oct 9.
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