MNI Peru CB Preview - Nov 2025: Hold Seen, Risk Of Dovish Tilt
Executive Summary
- With the policy rate already very close to neutral and growth around its potential rate, the BCRP is widely expected to remain on hold at 4.25% this week. Previously, Governor Velarde has also said that there is no need to be aggressive with rate cuts.
- However, recent softer-than-expected CPI inflation data and mounting concerns about the impact of the continued appreciation of the Peruvian sol on the domestic economy keep the door open to a further cut in the coming meetings.
After remaining on hold last month, the Board of the BCRP maintained a data dependent stance, continuing to emphasise the importance of inflation, particularly core, inflation expectations and economic activity. With one-year ahead inflation expectations remaining relatively stable just above 2%, this left the ex-ante real interest rate very close to the 2.0% neutral estimate, a point the BCRP has emphasised. Since then, CPI inflation surprised to the downside in October, with the headline rate holding just above the bottom of the central bank’s 1-3% target range. However, economic growth has remained around its potential rate, giving the Board little urgency to cut again at this juncture.
Going forward, inflation is expected to rise gradually on the back of unfavourable base effects and a normalisation of food inflation. However, it will end this year below the 2% target, while the central bank expects core to remain around 2% in the projected horizon. Meanwhile, the continued appreciation of the Peruvian sol, which has rallied to fresh 5½-year highs against the dollar recently, presents a downside risk to the inflation outlook. This move appears to have become a source of concern for the central bank, which has bought US dollars in the spot market twice in the last two weeks, the first such interventions since April 2020.
