MNI Peru CB Preview - Sep 2026: Risk of Rate Hike Increasing
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Executive Summary
- The BCRP is likely 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.
- For now, policymakers still expect inflation to converge to target over the forecast horizon as the effects of supply shocks dissipate.
- Nonetheless, robust domestic demand and the further increase of inflation to a three-year high recently has raised the risk of a hawkish tilt and a possible rate hike before year-end.
Headline inflation rose to its highest level since September 2023 in August, driven by higher electricity and food prices. The headline rate rose to 4.44% y/y, from 4.07% in July, marginally above expectations. In m/m terms, prices rose by just 0.07%, however, and excluding food and energy prices, core inflation edged down by 7bp to 4.50% y/y. Meanwhile, the central bank’s preferred core ex-food, energy and transport measure rose by 8bp to 1.78% y/y.
Nonetheless, with headline inflation tracking far above the central bank’s 1-3% target range, one-year ahead inflation expectations have continued to climb, reaching 3.05% in August, according to the BCRP, from 3.01% in July and 2.83% in June. As a result, the real ex-ante policy rate has declined to 1.2%, well below the 2% neutral estimate. Despite this move, BCRP chief economist Armas noted last month that 2027 inflation expectations remain within target. However, he added that food prices could rise further in the coming months if the El Niño phenomenon strengthens and noted that domestic fuel prices have risen by more than international prices because of additional price hikes by Petroperu.
