Amid expectations of lower mining output, BCRP Governor Velarde said recently that the central bank now sees the economy growing by 3.1% this year (vs. 3.2% previously), still around potential. Meanwhile, the government now expects GDP growth to be in a 3.0-3.5% range this year (vs. 3.5% previously), reflecting concerns about the fiscal position. Earlier this month, Finance Minister Perez-Reyes said that the rigid fiscal target risked slowing the economy and that he believed the country’s fiscal rule is too strict given current world conditions. He admitted that the government was worried about the fiscal deficit, which he said will hit 2.5% of GDP this year, above the previous 2.2% forecast.
Fiscal concerns add to ongoing uncertainties around the tariff situation, warranting a continuation of the BCRP’s cautious stance at this juncture. The surge in copper prices following President Trump’s announcement of a 50% tariff could support PEN near-term (with USDPEN already at multi-year lows), but longer-term the negative impact on trade would have the potential to weigh on the currency.