MNI Peru CB Preview – July 2026: Still on Hold For Now

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Executive Summary

• The BCRP is widely expected to leave its benchmark reference rate unchanged at 4.25% on Thursday, as it continues to believe that the recent spike of inflation will be temporary.
• Although inflation surprised slightly to the upside in June and remains well above the central bank’s 3% target range ceiling, BCRP Governor Velarde said recently that he still sees no reason to raise interest rates for now.
• Nonetheless, elevated inflation expectations and the mounting threat of a strong El Niño in H2, set against the backdrop of robust economic activity, keeps risks skewed towards the possibility of a rate hike in the coming meetings.

Against a backdrop of above target inflation and robust economic activity, the BCRP maintained a data dependent stance last month, giving no explicit guidance on the rate outlook. The Board still expects the supply shocks driving most of the inflation spike to be temporary. Meanwhile, most leading indicators continue to show sound performance, according to the Board. Although global risks remain elevated, it still sees a positive outlook for global growth and notes the favourable terms of trade for Peru. Given this outlook, there appears to be little desire to hike rates at this juncture, although risks are still skewed towards a potential hike should inflation not decline as expected.

Indeed, Governor Velarde said recently that he still sees no reason to raise interest rates for now. While he expects inflation to end this year above target at 3.8%, he continues to see it returning to within the 1-3% target range early next year, before falling to 2% by the end of 2027. Meanwhile, he expects GDP growth to be around potential at 3.4% this year. However, he acknowledged risks posed by the emerging El Niño weather phenomenon, which he said could cut GDP growth by up to 0.9pp next year. His remarks came before he agreed to stay on for another term as Governor of the BCRP, shortly after being nominated by President-elect Keiko Fujimori. This should be interpreted as a move that reinforces policy continuity, and while not outside of expectations, a positive for markets at the margin.